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CA Final · Financial Reporting · Introduction to Indian Accounting Standards

Kaveri Textiles Ltd is preparing financial statements under Ind AS. A specific Ind AS does not deal with a particular transaction, and management must choose an accounting policy. Following the Ind AS hierarchy for such situations, which approach should management adopt first?

Management should first look at Ind AS dealing with similar and related issues, and then at the definitions, recognition criteria and measurement concepts in the Conceptual Framework. Industry practice or tax law is not the primary source when no specific Ind AS applies.

  1. AApply the requirements in Ind AS dealing with similar and related issues, and then the Conceptual Framework definitions and recognition criteriaCorrect
  2. BApply the most favourable policy used by other Indian companies in the industry
  3. CApply the Income-tax Act treatment since tax rules fill all gaps
  4. DApply the Conceptual Framework only after consulting the company's auditors, ignoring other Ind AS

Explanation

Where no Ind AS specifically applies, management uses judgement and considers first the requirements in Ind AS dealing with similar and related issues, then the definitions, recognition criteria and measurement concepts in the Conceptual Framework. Tax law or industry practice is not the primary source; the second option reverses the logic.

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