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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Himalaya Motors Ltd. discovers in its second quarter that an inventory valuation approach used in the first quarter was changed to a method permitted by AS 2, with the change made at the start of the second quarter. Under AS 25, which treatment is correct for the interim report?

The change is a change in accounting policy, so AS 25 requires restating the prior interim periods of the current financial year where practicable and disclosing its nature and effect. It cannot be applied silently from Q2 or deferred until the annual statements.

  1. AApply the change prospectively from Q2 only and make no restatement or disclosure in the interim reports
  2. BTreat it as a change in accounting policy: restate prior interim periods of the current financial year where practicable, and disclose the nature and effectCorrect
  3. CDefer recognising the effect until the annual financial statements
  4. DIgnore the change in interim reports as interim figures are only estimates

Explanation

AS 25 requires the same accounting policies in interim statements as in the latest annual statements, unless a policy change is made. A change is reflected by restating prior interim periods of the current financial year where practicable, so the interim figures are comparable, and the nature and effect are disclosed. Prospective-only treatment without disclosure or deferral to year end is not permitted.

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