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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Ganga Foods Ltd reports quarterly. In the quarter ended 30 September, it changed its accounting policy for inventory valuation from weighted average to FIFO, as permitted by AS 2. The first quarter (ended 30 June) had already been reported using weighted average. Under AS 25, which treatment is correct?

The new FIFO policy is applied from the start of the current financial year by restating prior interim periods of that year, where practicable, with disclosure of the nature and effect of the change. AS 25 does not allow prospective-only application or waiting until the annual report.

  1. AApply the new policy from the start of the current financial year, restating the prior interim period of the current year, if practicable, and disclose the changeCorrect
  2. BApply the new policy only prospectively from 1 July with no restatement or disclosure
  3. CApply the new policy retrospectively to all earlier financial years and restate previous years' annual accounts only
  4. DIgnore the change until the annual report is prepared at 31 March

Explanation

AS 25 requires a change in accounting policy to be reflected by restating the financial statements of prior interim periods of the current financial year, and comparable interim periods of prior years where practicable, with disclosure of the nature and effect. Prospective-only treatment and deferral to year-end are not permitted.

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