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

Meera Engineering Ltd. has Rs. 12,00,000 of expenditure on a small tools consignment. Management expenses it fully in the year of purchase, although the tools last several years, arguing the amount is insignificant relative to the company's turnover of Rs. 80 crore and would not influence any user's decision. Which consideration under AS 1 supports this treatment?

The treatment is supported by materiality. Under AS 1, financial statements should disclose or separately treat all material items, and an amount that is insignificant relative to turnover and would not influence users' decisions may be expensed immediately without separate capitalisation or disclosure.

  1. ASubstance over form
  2. BPrudence
  3. CMaterialityCorrect
  4. DGoing concern

Explanation

Materiality: items are disclosed or treated separately only if knowledge of them could influence users' decisions. An insignificant amount may be expensed and not separately disclosed. Prudence relates to provision for losses and not recognising unrealised gains, so it is not the basis here.

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