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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Gowda Pharma Ltd reports quarterly. During the second quarter ended 30 September, it changed its accounting policy for inventory valuation from weighted average to FIFO as required by a new regulation. The change has a material effect. According to AS 25, how should the change be reflected in the interim reports?

The change should be reflected by restating earlier interim periods of the current financial year, and comparable periods of prior years where practicable, to the new policy, with disclosure of its nature and effect. It should not be applied only prospectively or deferred to annual statements.

  1. AApply the change only from the third quarter onwards without restating
  2. BApply the change in the second quarter only, leaving the first quarter report as originally published
  3. CRestate prior interim periods of the current financial year to reflect the new policy where practicable, and disclose the nature and effect of the changeCorrect
  4. DIgnore the change in interim reports and apply it only in annual financial statements

Explanation

AS 25 requires a change in accounting policy, other than one required by an accounting standard, 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. The nature and effect must be disclosed. Applying it only prospectively or ignoring it conflicts with this requirement.

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