Advanced AccountingQuestion 5305 of 305
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8. Ascertain the loss/gain due to change in foreign exchange rates to be recognised in the financial statements for the year ended 31st March, 2024 as per 11.

Options

A` 2,50, 000 Exchange gain should be credited to profit and loss account.
B` 5,00,000 Exchange gain should be credited to profit and loss account. (c) ` 5,00,000 Exchange loss should be debited to profit and loss account.
C
D` 2,50,000 Exchange loss should be debited to profit and loss account.
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Correct Answer

✅ Option A — ` 2,50, 000 Exchange gain should be credited to profit and loss account.

All Options:

  • A` 2,50, 000 Exchange gain should be credited to profit and loss account. ✓
  • B` 5,00,000 Exchange gain should be credited to profit and loss account. (c) ` 5,00,000 Exchange loss should be debited to profit and loss account.
  • C
  • D` 2,50,000 Exchange loss should be debited to profit and loss account.

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Detailed Solution & Explanation

Under AS 11 (The Effects of Changes in Foreign Exchange Rates):
1. The transaction is initially recorded at the exchange rate on the date of transaction (1st Jan 2024):
Liability=US \displaystyle </mi><mn>2</mn><mo separator="true">,</mo><mn>50</mn><mo separator="true">,</mo><mn>000</mn><mo>×</mo><mi mathvariant="normal">‘</mi><mtext> </mtext><mn>81</mn><mo>=</mo><mi mathvariant="normal">‘</mi><mtext> </mtext><mn>2</mn><mo separator="true">,</mo><mn>02</mn><mo separator="true">,</mo><mn>50</mn><mo separator="true">,</mo><mn>000</mn></mrow><annotation encoding="application/x-tex">\text{Liability} = \text{US } \2,50,000 \times `\,81 = `\,2,02,50,0003. The resulting exchange difference is a gain (reduction in liability):
Exchange Gain=‘ 2,02,50,000−‘ 2,00,00,000=‘ 2,50,000\text{Exchange Gain} = `\,2,02,50,000 - `\,2,00,00,000 = `\,2,50,000This gain should be credited to the Profit and Loss Account.
Hence, **Option A** is the correct answer.

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