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

Mehta Pharma Ltd. values inventory at lower of cost and net realisable value, using FIFO. During 2025-26 it changed to weighted average cost; the effect on closing inventory is not ascertainable, though the change is material. Which is correct under AS 1?

AS 1 requires disclosure of a material change in accounting policy together with its effect. Where the effect cannot be ascertained, wholly or in part, the company must state that fact. So Mehta Pharma must disclose the change and indicate that the effect is not ascertainable.

  1. AThe change cannot be made until the effect is ascertainable
  2. BThe change must be disclosed and, if the effect is not ascertainable, that fact must be indicatedCorrect
  3. CDisclosure is not required because the amount is not known
  4. DPrior year figures must be restated and no other disclosure is needed

Explanation

AS 1 requires disclosure of the change and its effect; where the amount is not ascertainable wholly or partly, the fact is to be indicated. Not knowing the amount does not remove the disclosure duty.

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