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

Kaveri Textiles Ltd. follows the accrual basis, going concern and consistency as fundamental accounting assumptions. In preparing its financial statements for 2025-26, the company did not disclose any of these three assumptions, and its financial statements were prepared in line with all three. Which statement is correct under AS 1?

No separate disclosure is needed. Under AS 1, going concern, consistency and accrual are fundamental accounting assumptions, and disclosure is required only when one of them is not followed. Since Kaveri Textiles followed all three, it need not disclose them in its financial statements.

  1. AThe company must disclose all three assumptions in every case, as they are always significant policies
  2. BThe company need not disclose them, because if fundamental accounting assumptions are followed, disclosure is not requiredCorrect
  3. CThe company must disclose only the going concern assumption, because it is the most important
  4. DThe company must disclose them only if the auditor requests it in writing

Explanation

AS 1 states that if the fundamental accounting assumptions (going concern, consistency, accrual) are followed in financial statements, specific disclosure is not required. Disclosure is needed only if a fundamental assumption is not followed. Hence the first option is wrong because it demands disclosure even when they are followed.

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