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

Kaveri Engineering Ltd. changed its method of depreciation on machinery from the written down value method to the straight line method from the current year. The change is not required by any statute or accounting standard, but management believes it gives a more appropriate presentation. Under AS 1, what is the required treatment?

The company must disclose the change in depreciation method, the reason for it, and the amount by which financial statements items are affected, to the extent ascertainable. If the effect cannot be ascertained, that fact must be stated. A material policy change cannot go undisclosed.

  1. ANo disclosure is needed because depreciation is an estimate, not a policy
  2. BDisclose the change, the reason, and the amount by which the financial statements are affected, to the extent ascertainable; if the effect is not ascertainable, state that factCorrect
  3. CDisclose only the reason for the change; the monetary effect should never be quantified
  4. DRestate the financial statements of all earlier years and give no disclosure in the current year

Explanation

A change in accounting policy that has a material effect must be disclosed, with the reason and the amount by which items are affected, to the extent ascertainable. If the amount is not ascertainable wholly or in part, that fact is indicated. Option C is wrong because quantification is required where ascertainable.

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