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

Ananya Pharma Ltd. has the following items for 2025-26. (i) It changed the method of depreciation on machinery from WDV to SLM, which is a change in accounting policy. (ii) Under SLM, the depreciation for the year is ₹7,20,000, whereas under WDV it would have been ₹9,50,000. (iii) It also started depreciating a newly acquired type of vehicle, a type never held before, using SLM. What is the effect to be disclosed on profit for the change in (i), and is (iii) a change in accounting policy?

Depreciation falls from ₹9,50,000 to ₹7,20,000, so profit rises by ₹2,30,000, and this must be disclosed. Applying SLM to a new type of vehicle never held before is a policy for substantially different transactions, so under AS 1 it is not a change in accounting policy.

  1. AProfit is higher by ₹2,30,000; item (iii) is not a change in accounting policyCorrect
  2. BProfit is lower by ₹2,30,000; item (iii) is a change in accounting policy
  3. CProfit is higher by ₹2,30,000; item (iii) is a change in accounting policy
  4. DProfit is higher by ₹16,70,000; item (iii) is not a change in accounting policy

Explanation

Depreciation falls from 9,50,000 to 7,20,000, a reduction of ₹2,30,000, so profit is higher by ₹2,30,000 (the cost-based reduction of an expense). AS 1 notes that adopting a policy for transactions that differ in substance from previously occurring ones is not a change in accounting policy, so item (iii) is not one. Lower profit would arise from a sign error, and 16,70,000 simply adds the two depreciation figures.

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