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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Desai Foods Ltd. changes its accounting policy for inventory valuation from weighted average to FIFO in the third quarter of the year ending 31 March 2027. The change is permitted under AS 2. Under AS 25, how should the change be reflected in interim reports?

Desai should restate the earlier interim periods of the current financial year, and comparable interim periods of prior years where practicable, as if the FIFO policy had always applied. It must also disclose the nature and effect of the change. Applying it only from Q3 would make the quarters inconsistent.

  1. AApply it only prospectively from the fourth quarter with no restatement or disclosure
  2. BRestate prior financial years only and leave earlier interim periods of the current year unchanged
  3. CApply the new policy only from the third quarter and ignore the first two quarters
  4. DRestate the prior interim periods of the current financial year to reflect the new policy, and disclose the nature and effect of the changeCorrect

Explanation

AS 25 requires a change in accounting policy within the current year to be reflected by restating the financial statements of prior interim periods of the current financial year, and by restating comparable interim periods of prior years where practicable. The nature and effect of the change must be disclosed. Applying it only from the third quarter would leave the year's interim periods inconsistent.

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