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

Himalaya Foods Ltd. changed its policy for valuing inventory this year. The effect on the current year's profit is a decrease of ₹8,00,000 and is material. The effect on the future periods cannot be ascertained. Which of the following correctly states the disclosure under AS 1 and the position on the amount?

The company must disclose the ₹8,00,000 effect on current-year profit and state the fact that the effect on future periods cannot be ascertained. AS 1 requires quantification where ascertainable and an indication of that fact where it is not.

  1. ADisclose the ₹8,00,000 effect; where the effect on future periods is not ascertainable, indicate that factCorrect
  2. BDisclose nothing about future periods and nothing about the current year as the amount is a decrease
  3. CDisclose the effect on future periods by estimating it, since non-ascertainability is not allowed to be stated
  4. DDisclose only that the policy has changed; the amount of ₹8,00,000 should not be disclosed

Explanation

AS 1 requires disclosure of the amount by which any item in the financial statements is affected by the change, if ascertainable. Where the amount is not ascertainable wholly or in part, the fact should be indicated. So ₹8,00,000 is disclosed for the current year, and the fact that future effect is not ascertainable is stated. Option D wrongly omits the amount.

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