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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 Pharma Ltd. adopted a new accounting policy in 2025-26 for a transaction type that had never occurred before. Which statement is correct under AS 5?

This is not a change in accounting policy. AS 5 says adopting a policy for transactions that did not occur previously, or that differ in substance from earlier ones, is not a change in policy, so the change-in-policy disclosure rules do not apply.

  1. AIt is a change in accounting policy and must be disclosed with its effect
  2. BIt is a change in accounting policy and needs retrospective adjustment of reserves
  3. CIt is a prior period item and shown separately in the statement of profit and loss
  4. DIt is not a change in accounting policy, because adopting a policy for transactions that did not previously occur is not a changeCorrect

Explanation

AS 5 states that adopting an accounting policy for events or transactions that differ in substance from previously occurring ones, or for ones that did not occur earlier, is not a change in accounting policy. Hence no change-in-policy disclosure applies.

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