CA Inter P1 · Chapter 5 · Question 9 of 12
Case: On 1 February, Kamakhya Textiles Ltd entered into a 3-month forward contract to buy USD 50,000 to hedge an existing payable (not for trading or speculation). The spot rate was ₹82.00 and the forward rate ₹82.90. The financial year ends on 31 March. The premium on the forward contract to be recognised as expense for the year under AS 11 is:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) ₹30,000
Explanation
Under AS 11, the premium or discount on a forward exchange contract not intended for trading or speculation is amortised as expense or income over the life of the contract. Total premium = USD 50,000 x (82.90 - 82.00) = 45,000. Amount for February and March = 45,000 x 2/3 = ₹30,000.
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