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

Mehta Engineering Ltd. changed its method of depreciation on machinery from the written down value method to the straight line method from 1 April of the current year. The change has a material effect on the current year's profit. According to AS 1, which disclosure is required in the financial statements?

The company must disclose the change in policy, the reasons for it, and the amount by which the affected items are impacted, to the extent ascertainable. AS 1 requires this for any material policy change, whether profit increases or decreases, and the disclosure must appear in the financial statements.

  1. AOnly the new method, since the old method is no longer relevant
  2. BThe change, the reason for it, and the amount by which the financial statement items are affected, to the extent ascertainableCorrect
  3. CThe change in notes only if the effect is an increase in profit
  4. DThe change only in the Directors' Report and not in the financial statements

Explanation

AS 1 requires that any change in an accounting policy that has a material effect in the current period be disclosed, along with the amount by which financial statement items are affected, to the extent ascertainable. If the amount cannot be ascertained, this fact is stated. Option C is wrong because the direction of the effect is irrelevant.

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