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CMA Intermediate · Financial Accounting · Introduction to Accounting Standards (GAAP, AS and Convergence to Ind AS)

Gajanan Foods Ltd has long valued a class of assets under a policy that is no longer relevant or reliable, though a more relevant and reliable alternative exists. Its CFO argues the policy should continue for comparability with earlier years. Which view agrees with the ICAI Framework?

The policy should change. The Framework states that comparability is not mere uniformity and must not impede improved accounting. Continuing a policy that falls short of relevance and reliability, when better alternatives exist, is inappropriate.

  1. AContinue, because comparability means uniformity
  2. BContinue, because changing a policy is prohibited by the Framework
  3. CChange, because comparability should not be confused with mere uniformity and should not impede improved accountingCorrect
  4. DChange, but only after the Accounting Standards Board issues a new Standard

Explanation

The Framework says comparability must not be confused with mere uniformity and should not impede improved standards. It is inappropriate to continue a policy not in keeping with relevance and reliability, or to leave policies unchanged when more relevant and reliable alternatives exist. Option A is therefore wrong.

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