Question

On May 12, Lowsy Company purchased goods from a foreign supplier. The account was settled on June 10 with payment of 1,250,000 foreign currency units. Lowsy Company's fiscal year end is May 31. On May 12, the exchange rate was $1 U.S. dollar = 45.375 FCU; on May 31, the exchange rate was $1 U.S. dollar = 45.12589 FCU; and on June 10, the exchange rate was $1 U.S. dollar = 47.2517 FCU. What was the adjusted balance in the Accounts Payable account on May 31?

Answer 1

As per AS 11 or Ind as 21, monetary items denominated in a forign currency should be reported using the closing rate i.e. available on balance sheet date.the effect of exchange difference should be taken into profit and loss account.

Sundry creditors is a monetary irems hence should be valued at the closing rate i.e.$1=45.12589FCU.

The difference ofus$152.08{(1250000÷45.375)-(1250000÷45.12589)} should be shown as axchange loss in the profit and loss a/c and also sundry creditor is to increased from such amount at the balance sheet date i.e. 31st may.