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Advanced Accounting · AS 25 Interim Financial Reporting

AS 25 Use of Estimates and Restatement of Prior Interim Periods

Updated 4 October 2026 · Fact-checked

AS 25 allows more estimation in interim reports than in annual reports, but the report must still be reliable and give relevant information. A change in accounting policy is applied by restating prior interim periods of the current year, and the comparative interim periods of earlier years where practicable. Solve by checking the rule, then the numbers.

Understand Use of Estimates and Restatement of Prior Interim Periods

An interim report is prepared quickly, often without a full year-end process. So AS 25 accepts that estimates will be used more than in annual statements. Examples are inventory write-downs, provisions, impairment checks and tax. The test is that the information is reliable and that all material information needed to understand the entity's position is disclosed.

The basic principle is that the interim period is a part of the financial year, not a stand-alone period. You apply the same accounting policies as in the latest annual financial statements, unless a policy change has been made after those statements. Recognition and measurement follow the same definitions as annual reporting. Frequency of reporting must not change the annual result. Measurement is made on a year-to-date basis.

A typical case is a full impairment test or a detailed inventory count that is done only at year end. At interim dates you use the best available information, for example a rough NRV check or an updated estimate. If an estimate in an earlier interim period changes in a later one, you do not restate the earlier interim figures for the change. The effect is recognised in the later interim period, and if it is material the nature and amount of the change are disclosed.

A change in accounting policy is different. If you change a policy in the current financial year, you restate the interim periods already reported in that year, so that the same policy applies to all of them and to the annual result. Where practicable, comparable interim periods of prior years are restated as well. Do not confuse this with a change in estimate, which is prospective.

If restating is not practicable for any prior period, the entity discloses that fact and the reason. The key skill in exams is telling an estimate change from a policy change, then applying the right treatment and giving the figure the question asks for.

Key rules to remember

Principle: interim period is part of the year
Same accounting policies as the latest annual statements; measure on a year-to-date basis
Frequency of reporting must not affect the annual result.
Change in estimate in later interim period
Effect recognised in the later interim period; earlier interim figures are not restated
Disclose the nature and amount if material.
Change in accounting policy
Restate prior interim periods of the current year (and comparable interim periods of earlier years where practicable)
If not practicable, disclose that fact and the reason.
Year-to-date effect of a restated policy
Adjustment for earlier interims = Restated profit of those interims − Profit originally reported
Use it to show the change in the interim already reported.
Interim inventory write-down
Write-down = Cost − NRV, only if NRV is below cost at the interim date
Reverse the write-down when NRV increases, limited to the amount originally written down (AS 2).

How to solve Use of Estimates and Restatement of Prior Interim Periods questions

Use this order for any question on estimates, policy change or restatement in an interim report.

  1. 1Identify what changed: a new estimate, a new accounting policy, or an error. Read the wording closely.
  2. 2If it is an estimate, decide whether it only reflects fuller information. Do not restate earlier interims.
  3. 3If it is a policy change, confirm it is a real change in policy, such as moving from one inventory cost formula to another, and not a new policy for a new type of transaction.
  4. 4For a policy change, recompute each earlier interim period of the current year under the new policy.
  5. 5Compute the adjustment for each period as new-policy profit minus profit originally reported. Also adjust comparatives where practicable.
  6. 6Recognise the estimate change in the period in which it is made and remember to apply year-to-date measurement.
  7. 7Write the answer in a statement form: period, originally reported, restated, difference.
  8. 8State the disclosures: nature of change, effect, and if restating is impracticable, say so with the reason.

Quickest way: Estimate or policy: 30-second decision

When to use it: Use for MCQs and for the first line of any written answer.

  1. Ask: did the way of measuring change (policy) or only the number (estimate)?
  2. Estimate: current period only, no restating of earlier interims, disclose if material.
  3. Policy: restate the earlier interims of the same year, then comparatives where practicable.
  4. For MCQs, eliminate options that restate earlier interims for a pure estimate change.
  5. For written answers, open with the rule in one line, then show a three-column working: originally reported, restated, difference. This earns step marks even if a number slips.

Common mistakes in Use of Estimates and Restatement of Prior Interim Periods

  • Restating earlier interim periods for a change in estimate

    Students mix up the treatment of estimate changes and policy changes.

    Fix: Remember: estimate changes go forward in the period of change. Only policy changes restate.

  • Treating an interim period as a stand-alone period

    The period looks like a mini year, so students apply year-end tests in isolation.

    Fix: Apply the same policies as the annual statements and measure year to date, so the annual result is not affected by reporting frequency.

  • Calling a new policy for new transactions a change in policy

    The word 'new' appears in the question.

    Fix: Check whether an existing policy is being replaced. If the transactions are new or different in substance, there is no change.

  • Skipping disclosures of the change

    Students stop once the figure is computed.

    Fix: Add the nature of the change, its effect, and that restating was not practicable if that is so.

  • Writing down inventory below NRV differently from the annual method

    Students think interim rules are looser.

    Fix: Use the same NRV test as the annual statements, with estimates where full data is missing.

Worked examples

Example 1

A company reports quarterly. Profit reported for the first quarter was ₹8,00,000. In the second quarter it changes its inventory cost formula from FIFO to weighted average. Under the new formula, the first quarter profit would have been ₹7,50,000. Second quarter profit under the new formula is ₹9,00,000. State the treatment and the half-year profit.

Show the solution
  1. The cost formula is changed, so this is a change in accounting policy, not an estimate.
  2. Prior interim periods of the current year must be restated. The first quarter is restated to ₹7,50,000.
  3. Adjustment to the first quarter = 7,50,000 − 8,00,000 = ₹(50,000).
  4. Half-year profit under the new policy = 7,50,000 + 9,00,000 = ₹16,50,000.
  5. Disclose the nature of the change, its effect on the first quarter and that the half-year is on the new policy.

Answer: Restate the first quarter to ₹7,50,000, a reduction of ₹50,000. Half-year profit is ₹16,50,000.

Example 2

In the first quarter a company wrote down inventory costing ₹6,00,000 to its estimated NRV of ₹5,20,000. In the second quarter, on better information, NRV of the same inventory is estimated at ₹5,60,000. Explain the treatment in the second quarter.

Show the solution
  1. First quarter write-down = 6,00,000 − 5,20,000 = ₹80,000, charged in the first quarter.
  2. NRV has increased to ₹5,60,000, so part of the write-down is no longer needed. AS 2 requires reversal when NRV increases, limited to the amount originally written down. The first quarter is not restated.
  3. Write-down now needed = 6,00,000 − 5,60,000 = ₹40,000.
  4. Reversal in the second quarter = 80,000 − 40,000 = ₹40,000, credited to the second quarter's profit. This is within the original write-down of ₹80,000.
  5. Disclose the nature and amount of the change if material.

Answer: ₹40,000 of the write-down is reversed in the second quarter. The first quarter report is not restated. Inventory is carried at ₹5,60,000.

Exam tips

  • Write the one-line rule first: estimate is prospective, policy is restated. It often earns the first mark.
  • In practical questions, set out originally reported, restated and difference. Examiners can then award step marks.
  • For MCQs, watch the word 'policy' versus 'estimate' and eliminate the options that restate for an estimate change.
  • Link the answer to inventory write-down and impairment illustrations, since these are the usual contexts.
  • Always add one disclosure line at the end.

Practice questions from AS 25 Interim Financial Reporting

Use of Estimates and Restatement of Prior Interim Periods in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Use of Estimates and Restatement of Prior Interim Periods: frequently asked questions

Can estimates be used more in interim reports than in annual reports?

Yes. AS 25 accepts that measurement at interim dates may rely more on estimates. The report must still be reliable and give the information needed to understand the entity's position.

Do you restate earlier interim periods when an estimate changes?

No. The effect is recognised in the interim period in which the change occurs. You disclose the nature and amount if the change is material.

What happens when an accounting policy changes during the year?

You restate the interim periods already reported in the current year so one policy applies throughout. Where practicable, comparable interim periods of prior years are restated too.

What if restating prior interim periods is not practicable?

You disclose the fact that restating was not practicable and the reason for it.