On April 1, 2000, K.K. Industries (KKI) issued 10-year debentures carrying 12% coupon rate on the total face value of US$ 1,00,000. These are redeemable after 10 years at par. Interest is payable every year in $. At the time of issue of debentures, the rupee–US dollar exchange rate is ₹ 39 per dollar. Exchange rate during the intervening period was as follows:

Debenture interest was paid on respective due dates and accounted for in the books of accounts. The debentures were redeemed on March 31, 2010 for which the company paid ₹45,00,000 to buy 1,00,000 US$ for the purpose of redemption. The company transferred a total loss of ₹ 6,00,000 (45,00,000 – 39,00,000) as loss on account of exchange rate difference on March 31, 2010.

Discussion Question

Analyse the case and comment on the accounting practice followed by the company.

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Date 31-03-2001 31-03-2002 31-03-2003 31-03-2004 31-03-2005 * per dollar 39.40 39.50 39.90 39.70 40.00 Date 31-03-2006 31-03-2007 31-03-2008 31-03-2009 31-03-2010 * per dollar 40.10 40.00 42.25 44.35 45.00