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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Mehta Pharma Ltd. reports quarterly. Its net sales for the quarters ended 30 June, 30 September and 31 December 2026 were ₹40 crore, ₹50 crore and ₹60 crore. The year-end inventory write-down on a product was ₹3 crore, which arose during the final quarter ended 31 March 2027. It was not material to the annual figures but it is material to the fourth quarter's results. Under AS 25, which statement is correct regarding materiality assessment for the fourth quarter?

Materiality under AS 25 is judged against the interim period's own financial data rather than the annual figures. Because the ₹3 crore write-down is material to the fourth quarter, it should be recognised and disclosed in that quarter, not ignored or spread across the year.

  1. AMateriality is assessed only against annual figures, so no separate disclosure is needed
  2. BThe item is ignored since interim reports exclude inventory adjustments
  3. CMateriality is assessed in relation to the interim period's financial data, so the item should be recognised and disclosed for that periodCorrect
  4. DThe write-down is spread equally over all four quarters

Explanation

AS 25 states that materiality is assessed in relation to the interim period financial data, not forecast annual data. Hence an item material to the fourth quarter must be recognised and disclosed in that period. Spreading it over four quarters would be wrong as the loss arose in the last quarter.

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