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CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Kaveri Textiles Ltd. discovered in the year ended 31 March 2026 that depreciation of Rs 40,000 for the previous year had been omitted by mistake. Treating this as a prior period item under AS 5, how should the amount be dealt with in the current year's financial statements?

The omitted depreciation of Rs 40,000 is charged in the current year's Statement of Profit and Loss and disclosed separately as a prior period item, because AS 5 requires errors of earlier periods to be included in current profit or loss with separate disclosure.

  1. ACharged to the current year's Statement of Profit and Loss and separately disclosed as a prior period itemCorrect
  2. BAdjusted directly against opening reserves without passing through the Statement of Profit and Loss
  3. CIgnored because the amount is small and relates to a closed year
  4. DShown as an extraordinary item in the current year

Explanation

Under AS 5, prior period items are income or expenses arising in the current period from errors or omissions of earlier periods. They are included in determining current period profit or loss, and disclosed separately with their nature and amount. Adjusting reserves directly is wrong because AS 5 requires the items to pass through the Statement of Profit and Loss.

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