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CSEET · Fundamentals of Accounting · Basic Concepts and Principles of Accounting

Kapoor Ltd. has used the straight-line method of depreciation for years. In the current year the accountant switches to the written-down value method only to show a lower profit, without any disclosure. Which statement is correct?

The switch breaches the consistency convention. Accounting methods should be followed period after period so results stay comparable. A change should be made only for a valid reason and its effect disclosed. Wanting a lower profit is not a valid reason, and conservatism does not excuse non-disclosure.

  1. AIt breaches consistency, and a change should be made only for a valid reason with its effect disclosedCorrect
  2. BIt is permitted because depreciation is always an estimate
  3. CIt breaches the money measurement concept
  4. DIt is proper under the conservatism convention so no disclosure is required

Explanation

Consistency requires the same accounting policies to be followed from period to period so that results are comparable. A change is acceptable only when justified, and its effect should be disclosed. Conservatism does not justify an undisclosed arbitrary change of method. Money measurement is unrelated.

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