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CA Intermediate · Advanced Accounting · AS 1 Disclosure of Accounting Policies

Anand Pharma Ltd. changed its inventory cost formula from FIFO to weighted average in the current year. The change is permitted under AS 2 and is made to give a more appropriate presentation. The effect on the current year's profit is a reduction of Rs. 3,40,000, and the effect on later periods cannot be ascertained. What does AS 1 require regarding disclosure?

Anand Pharma must disclose the change in policy and its Rs. 3,40,000 effect on current-year profit. Because the effect on later periods cannot be ascertained, it must state that fact. AS 1 requires disclosure of material policy changes and their effects, to the extent ascertainable.

  1. ADisclose the change and the Rs. 3,40,000 effect on the current year; if the effect on later periods is not ascertainable, indicate that factCorrect
  2. BNo disclosure is needed because the change is permitted under another Accounting Standard
  3. CDisclose the change only if the effect on later periods is ascertainable
  4. DRestate the previous years' financial statements and make no current-year disclosure

Explanation

AS 1 requires that any change in an accounting policy that has a material effect in the current period be disclosed, with the amount to the extent ascertainable. Where the amount is not ascertainable wholly or in part, that fact must be indicated. The change is disclosed even though it is permitted by AS 2.

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