An Indian company has a foreign currency payable of USD 1,00,000. The exchange rate at the transaction date was ₹80/USD and at the balance sheet date it is ₹84/USD. As per AS 11, how should this be reported? 

AS 11 requires that monetary items outstanding at the balance sheet date be translated at the closing rate. The payable at the transaction date = 1,00,000 × ₹80 = ₹80,00,000. At the balance sheet date = 1,00,000 × ₹84 = ₹84,00,000. The payable has increased by ₹4,00,000 in rupee terms, meaning a larger outflow is now required — this is an exchange loss, recognised immediately in the Profit and Loss account. If the rupee had appreciated instead, the payable would have reduced, creating an exchange gain. Deferral of exchange losses on monetary items is not permitted under AS 11. The closing rate rule applies to all monetary foreign currency items at each balance sheet date.