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

Ananya Ltd. adopts a new accounting policy in 2025-26 that has no material effect in the current year, but is reasonably expected to have a material effect in later periods. Which statement is correct under AS 1?

AS 1 requires that if a policy change has no material effect now but is reasonably expected to be material in later periods, the fact of the change must be disclosed in the period in which it is adopted. Hence Ananya Ltd. should disclose it in 2025-26.

  1. ANo disclosure is needed at all until the later periods when the effect arises
  2. BDisclosure is required only in the later period when the effect becomes material
  3. CThe policy change must be disclosed in the current year, and the effect on later periods should be disclosed where it is reasonably expected to be materialCorrect
  4. DThe prior period statements must be restated to show the effect

Explanation

AS 1 states that where the change has no material effect in the current period but is reasonably expected to have a material effect in later periods, the fact of the change should be appropriately disclosed in the period in which the change is adopted. Waiting for later periods is wrong.

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