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CA Final · Financial Reporting · Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Kaveri Pharma Ltd is reviewing its financial statements. Its CFO lists items such as expected credit loss allowance, provision for warranty and inventory obsolescence. Under Ind AS 8, how are these items best characterised?

They are accounting estimates, because Ind AS 8 defines accounting estimates as monetary amounts in financial statements that are subject to measurement uncertainty. Policies are the principles and bases applied, whereas these items are amounts measured with uncertainty.

  1. AAccounting policies, because they are conventions applied in preparing statements
  2. BAccounting estimates, because they are monetary amounts in financial statements subject to measurement uncertaintyCorrect
  3. CPrior period errors, because they are not known exactly
  4. DInd ASs prescribed under Section 133 of the Companies Act, 2013

Explanation

Ind AS 8 defines accounting estimates as monetary amounts in financial statements that are subject to measurement uncertainty. Allowances and provisions fit this. Calling them policies confuses the principle or basis used with the amount measured; uncertainty alone does not make something an error.

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