CA. Nitin Goel: Canitin

CA.
Nitin Goel
Educator: CA Inter Accounts

& Advanced Accounts
3 years experience with ITC Ltd.

> 7 Years teaching experience
All India Rankholder
(CPT-9, Inter- 7, Final-9)
Gold Medalist
Use Code: CANITIN

to get 10% Discount
Question 1 RTP Nov 2018 / RTP Nov 2020 / ICAI SM Illustration 2
Exchange Rate per $

Goods purchased on 1.1.2021 of US $ 15,000 ₹ 75
Exchange rate on 31.3.2021 ₹ 74
Date of actual payment 7.7.2021 ₹ 73
Ascertain the loss/gain for financial years 2020-21 and 2021-22, also give their treatment as per AS 11.
Question 2 ICAI SM Illustration 3

X Ltd. borrowed US$ 4,50,000 on 01/01/2021, which will be repaid as on 31/07/2021. X Ltd. prepares
financial statement ending on 31/03/2021. Rate of exchange between reporting currency (INR) and
foreign currency (USD) on different dates are as under:
01/01/2021 1 US$ = ₹ 48.00
31/03/2021 1 US$ = ₹ 49.00
31/07/2021 1 US$ = ₹ 49.50
Question 3 RTP Nov 2018 / RTP Nov 2020 / ICAI SM Illustration 1 (Similar)
Classify the following as monetary or non-monetary item:
(i) Inventories (ii) Trade Receivables
(iii) Investment in Equity Shares (iv) Property, Plant & Equipment.
Solution
Inventories Non-monetary
Trade receivables Monetary
Investment in Equity Shares Non-monetary
Property, Plant & Equipment Non-monetary
Question 4 IPCC Nov 2015 (5 Marks) / RTP Nov 2019/ ICAI SM Practice Ques 7
Explain briefly the accounting treatment needed in the following cases as per AS 11 as on 31.3.2021
a) Trade receivables as on 31.3.2021 in the books of XYZ Ltd. include an amount receivable from
Umesh ₹ 5,00,000 recorded at the prevailing exchange rate on the date of sales, i.e. at US $ 1= ₹
58.50. US $ 1 = ₹ 61.20 on 31.3.2021.
b) Long term loan taken from a U.S. Company, amounting to ₹ 60,00,000. It was recorded at US $ 1 = ₹
55.60, taking exchange rate prevailing at the date of transaction. US $ 1 = ₹ 61.20 on 31.3.2021.
Question 5
Beekay Ltd. purchased fixed assets costing ₹ 5,000 lakh on 01.04.2021 payable in foreign currency (US$)
on 05.04.2022. Exchange rate of 1 US$ = ₹ 50.00 and ₹ 54.98 as on 01.04.2021 and 31.03.2022
respectively. How it would be accounted for in the books of accounts ending 31st March, 2022.
Question 6 RTP May 2017 / ICAI SM Illustration 8

Omega Ltd. purchased fixed assets costing ₹3,000 lakhs on 1.4.2021 and the same was fully financed by
foreign currency loan (U.S. Dollars) payable in three annual equal instalments. Exchange rates were 1
Dollar = ₹ 40.00 and ₹ 42.50 as on 1.4.2021 and 31.3.2022 respectively. First instalment was paid on
31.03.2022. You are required to state, how these transactions would be accounted for.
Solution
As per AS 11 ‘The Effects of Changes in Foreign Exchange Rates’, exchange differences arising on the
settlement of monetary items or on reporting an enterprise’s monetary items at rates different from those
at which they were initially recorded during the period, or reported in previous financial statements,
should be recognized as income or expenses in the period in which they arise. Thus exchange differences
arising on repayment of liabilities incurred for the purpose of acquiring fixed assets are recognized as
income or expense.
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing.
Calculation of Exchange Difference:
Foreign currency loan = 3,000 lakhs/40 = 75 lakhs US Dollars
Exchange difference = 75 lakhs US Dollars × (42.50 – 40.00) = ₹187.50 lakhs
(including exchange loss on payment of first instalment)
Therefore, entire loss due to exchange differences amounting ₹ 187.50 lakhs should be charged to profit
and loss account for the year.
Note: The above answer has been given on the basis that the company has not exercised the option of
capitalization available under para 46 of AS 11. The answer will change if the company exercises the
option of capitalization.

A business having the Head Office in Kolkata has a branch in UK. The following is the trial balance of
Head Office and Branch as at 31.03.2022:
Account Name Dr. Cr.

Fixed Assets (Purchased on 01.04.2019) 5,000
Debtors 1,600
Opening Stock 400
Goods received from Head Office Account 6,100
(Recorded in HO books as ₹ 4,02,000)
Sales 20,000
Purchases 10,000
Wages 1,000
Salaries 1,200
Cash 3,200
Remittances to Head Office (Recorded in HO books as ₹ 1,91,000) 2,900
Head Office Account (Recorded in HO books as ₹ 4,90,000) 7,400
Creditors 4,000
• Closing stock at branch is £ 700 on 31.03.2022.
• Depreciation @ 10% p.a. is to be charged on fixed assets.
• Prepare the trial balance after been converted in Indian Rupees.
• Exchange rates of Pounds on different dates are as follow:
01.04.2019– ₹ 61;
01.04.2021– ₹ 63 &
31.03.2022 – ₹ 67
Question 8 RTP Nov 2015 / RTP May 2020 / ICAI SM Illustration 6

“Assets and liabilities and income and expenditure items in respect of dependent foreign branches
(integral foreign operations) are translated into Indian rupees at the prevailing rate of exchange at the end
of the year. The resultant exchange differences in the case of profit, is carried to other Liabilities
Account and the Loss, if any, is charged to revenue.” Comment.
Solution
The financial statements of an integral foreign operation (for example, dependent foreign branches)
should be translated using the principles and procedures described in AS 11. The individual items in the
financial statements of a foreign operation are translated as if all its transactions had been entered into by
the reporting enterprise itself.
Individual items in the financial statements of the foreign operation are translated at the actual rate on
the date of transaction. For practical reasons, a rate that approximates the actual rate at the date of
transaction is often used, for example, an average rate for a week or a month may be used for all
transactions in each foreign currency during the period. The foreign currency monetary items (for
example cash, receivables, payables) should be reported using the closing rate at each balance sheet date.
Non-monetary items (for example, fixed assets, inventories, investments in equity shares) which are
carried in terms of historical cost denominated in a foreign currency should be reported using the
exchange date at the date of transaction. Thus the cost and depreciation of the tangible fixed assets is
translated using the exchange rate at the date of purchase of the asset if asset is carried at cost. If the fixed
asset is carried at fair value, translation should be done using the rate existed on the date of the valuation.
The cost of inventories is translated at the exchange rates that existed when the cost of inventory
was incurred and realizable value is translated applying exchange rate when realizable value is
determined which is generally closing rate. Exchange difference arising on the translation of the financial
statements of integral foreign operation should be charged to profit and loss account. Exchange
difference arising on the translation of the financial statement of foreign operation may have tax effect
which should be dealt as per AS 22 ‘Accounting for Taxes on Income’.
Thus, the treatment by the management of translating all assets and liabilities; income and
expenditure items in respect of foreign branches at the prevailing rate at the year end and also the
treatment of resultant exchange difference is not in consonance with AS 11
Question 9 RTP May 2019 / ICAI SM Illustration 4

Rau Ltd. purchased a plant for US$ 1,00,000 on 01st February 2021, payable after three months.
Company entered into a forward contract for three months @ ₹ 49.15 per dollar. Exchange rate per
dollar on 01st Feb. was ₹ 48.85. How will you recognize the profit or loss on forward contract in the
books of Rau Ltd.

Mr. A bought a forward contract for three months of US$ 1,00,000 on 1st December at 1 US$ = ₹ 47.10
when exchange rate was US$ 1 = ₹ 47.02. On 31st December when he closed his books exchange rate
was US$ 1 = ₹ 47.15. On 31st January, he decided to sell the contract at ₹ 47.18 per dollar. Show how
the profits from contract will be recognized in the books.
Solution
As per AS 11, in recording a forward exchange contract intended for trading or speculation purpose, the
premium or discount on the contract is ignored and at each balance sheet date, the value of contract is
marked to its current market value and the gain or loss on the contract is recognised. Since the forward
contract was for speculation purposes the premium on forward contract i.e. the difference between the
spot rate and the forward contract rate will not be recorded in the books.
Only when the forward contract is sold the difference between the forward contract rate and sale rate will
be recorded in the Profit & Loss Account.


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CA.

Educator: CA Inter Accounts

3 years experience with ITC Ltd.

Use Code: CANITIN

Exchange Rate per $

Question 2 ICAI SM Illustration 3

Question 6 RTP May 2017 / ICAI SM Illustration 8

Question 7 ICAI SM Illustration 7

Account Name Dr. Cr.

Question 8 RTP Nov 2015 / RTP May 2020 / ICAI SM Illustration 6

Question 9 RTP May 2019 / ICAI SM Illustration 4

Question 10 ICAI SM Illustration 5

The copyright of these notes is with C.A. Nitin Goel

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