Page 11 - 15. COMPILER QB - INDAS 21

Working of the cumulative balance of the FCTR
Particulars Actual translated Amount Difference translated at closing rate of
amount in Euro USD 1.15 /EURO

A b b-a
Issued capital 25,000 34,783* 9,783
Opening retained earnings 15,000 21,739** 6,739
Profit for the year 18,333 19,130*** 797
58,333 … 75,652 17,319

40,000 ∗∗ 25,000 ∗∗∗ 22,000
= 34,783 = 21,739 = 19,130
1.15 1.15 1.15

Q11 (Jan. 21 – 5 Mark)

SB Limited is engaged in the business of producing extracts from the natural plants for pharmaceuticals and
Ayurvedic companies. It has a wholly owned subsidiary, UB Limited which is engaged in the business of
pharmaceuticals. UB Limited purchases the pharmaceuticals extracts from its parent company. The demand of
UB Limited is very high and hence to cater its shortfall, UB Limited also purchases the pharmaceutical

extracts from other companies. Purchases are made at the competitive prices
SB Limited sold pharmaceutical extracts to UB Limited for Euro 10 lakhs on 1st February, 2021. The cost of
these extracts was Rs 770 lakh in the books of SB Limited at the time of sale. At the year-end, i.e. 31st
March 2021, all these pharmaceutical extracts were lying as closing stock and payable with UB Limited.
Euro is the functional currency of UB Limited while Indian-Rupee is the functional currency of SB Limited.
Following additional information is available:

Exchange rate on 1st February 2021 1 Euro = Rs 85
Exchange rate on 31st March 2021 1 Euro = Rs 88
Provide the accounting treatment of the above in the books of SB Limited and UB Limited.
Also show its impact on consolidated financial statements. Support your answer by journal entries, wherever
necessary. Assume NRV to be higher than the cost.

SOLUTION
Accounting treatment in the books of SB Ltd (Functional Currency INR)

SB Ltd will recognize sales of Rs 850 lakh (10 lacs Euro x Rs 85)
Profit on sale of inventory = 850 lakh – 770 lakh = Rs 80 lakh.
On balance sheet date receivable from UB Ltd. will be translated at closing rate i.e. 1 Euro
= Rs 88. Therefore, unrealised forex gain will be recorded in standalone profit and loss of
Rs 30 lakh [i.e. (Rs 88 - Rs 85) x 10 lakh Euro].

Journal Entries
Date (Rs in lakh) (Rs in lakh)
1.2.2021 UB Ltd. A/c Dr. 850
To Sales 850
(Being revenue recorded on initial recognition)
31.3.2021 UB Ltd. A/c Dr. 30
15. 10