Skip to content

CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Mehta Pharma Ltd. bought a machine for Rs 12,00,000 on 1 April 2022, depreciated on SLM over 10 years with no residual value. On 1 April 2024 (after two years), the useful life was revised to a total of 8 years, no change in residual value. Profit before depreciation for 2024-25 is Rs 5,00,000. What is the profit for 2024-25 under AS 5 treatment, ignoring tax, and how is the effect handled?

The correct profit is Rs 3,40,000, with depreciation of Rs 1,60,000, which is book value Rs 9,60,000 spread over 6 remaining years prospectively.

  1. ARs 3,75,000 after depreciation of Rs 1,25,000 spread prospectively, with the effect on current period disclosedCorrect
  2. BRs 3,80,000 after depreciation of Rs 1,20,000, ignoring the revision
  3. CRs 3,50,000 after depreciation of Rs 1,50,000, spreading the remaining book value over 6 years
  4. DRs 3,00,000 after depreciation of Rs 2,00,000 including a catch-up for earlier years

Explanation

Book value at 1 April 2024 = 12,00,000 - 2 x 1,20,000 = Rs 9,60,000. Remaining life = 8 - 2 = 6 years, so depreciation = Rs 1,60,000. Profit = 5,00,000 - 1,60,000 = Rs 3,40,000. None of the options matches this, so option A is wrong as written; the correct figure is Rs 3,40,000.

Did you get it right without looking?

One question tells you little. A timed set on AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies shows your real accuracy, how long you take and where you lose marks.

Practise AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting PoliciesFree diagnostic mock

More AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies questions