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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

Meera Foods Ltd. had, up to 2024-25, been recording sales returns only when goods were physically received. From 2025-26 it records them on the date the credit note is issued, a change made to comply with a newly effective statutory requirement. Which treatment is consistent with AS 5?

The change is a change in accounting policy made to comply with a statute, which AS 5 permits. The company should disclose the change and its material effect on the financial statements. It is not a prior period item, estimate revision, or extraordinary item.

  1. ATreat it as a change in accounting policy adopted to comply with a statute; disclose the impact if materialCorrect
  2. BTreat it as a prior period item and restate last year's sales
  3. CTreat it as a change in estimate with no disclosure
  4. DTreat it as an extraordinary item

Explanation

AS 5 says a change in accounting policy may be made if required by statute or for compliance with an accounting standard, or if it results in a more appropriate presentation. Such a change is disclosed with its material effect. It is not an estimate revision, prior period item, or extraordinary item.

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