Page 3 - 15. COMPILER QB - INDAS 21

Exchange difference arising on translating monetary item and settlement of creditors on 31st March
20X2:
Rs. Rs.

Creditors A/c (5,000 x $65) Dr. 3,25,000
Profit & loss A/c [(5,000 x ($ 67 -$ 65)] Dr. 10,000
To Bank A/c 3,35,000
Machinery A/c [(5,500*($ 67-$ 65)) Dr. 11,000
To OCI A/c 11,000

Q2 (Nov 18)

st
On 1 January 2018, P Ltd. purchased a machine for $ 2 lakhs. The functional currency of P Ltd. is Rupees.
At that date the exchange rate was $1 = Rs. 68. P Ltd. is not required to pay for this purchase until
th st
30 June, 2018. Rupees strengthened against the $ in the three months following purchase and by 31 March,
2018 the exchange rate was $1 = Rs. 65. CFO of P Ltd. Feels that these exchange fluctuations would not
affect the financial statements because P Ltd. has an asset and a liability denominated in rupees. which

was initially the same amount. He also feels that P Ltd. depreciates this machine over four years so the
future year-end amounts will not be the same.
st
Examine the impact of this transaction on the financial statements of P Ltd. for the year ended 31 March,
2018 as per Ind AS.
Solution

As per Ind AS 21 ‘The Effects of Changes in Foreign Exchange Rates’ the asset and liability would initially be
recognised at the rate of exchange in force at the transaction date i.e. 1st January, 2018. Therefore, the
amount initially recognised would be Rs1,36,00,000 ($ 2,00 000 x Rs. 68).
The liability is a monetary item so it is retranslated using the rate of exchange in force at 31st March, 2018.
This makes the closing liability of Rs 1,30,00,000 ($ 2,00,000 x Rs65).

The Gain on re-translation of Rs 6,00,000 (Rs1,36,00,000 – Rs1,30,00,000) is recognised in the Statement of
profit or loss.
The machine is a non-monetary asset carried at historical cost. Therefore, it continues to be translated using
the rate of Rs68 to $ 1.
Depreciation of Rs 8,50,000 (Rs1,36,00,000 x ¼ x 3/12) would be charged to profit or loss for the year ended
31st March, 2018.

The closing balance in property, plant and equipment would be Rs1,27,50,000 (Rs1,36,00,000 – Rs1,30,00,000).
This would be shown as a non-current asset in the statement of financial position.

Q3 (May 19)
Supplier, A Ltd., enters into a contract with a customer, B Ltd., on 1st January, 2018 to deliver goods in
exchange for total consideration of USD 50 million and receives an upfront payment of USD 20 million on this

date. The functional currency of the supplier is INR. The goods are delivered and revenue is recognised on 31st
March, 2018. USD 30 million is received on 1st April, 2018 in full and final settlement of the purchase
consideration.

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