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

Narmada Foods Ltd. changed an inventory policy this year. The change reduces the current year's profit by ₹4,00,000 and is expected to reduce profit of the next year by ₹1,50,000, because of the pattern of stock movement. Under AS 1, how should the company present the effect of the change?

The company discloses the ₹4,00,000 effect on the current year's profit, and because the change will materially affect later periods, it also indicates that future effect, to the extent ascertainable. The future ₹1,50,000 is not added to the current-year figure.

  1. ADisclose only the ₹4,00,000 current-year effect; future effects are never mentioned
  2. BDisclose the ₹4,00,000 current-year effect; as the effect on future periods is material, it should be appropriately indicated in the year of change, to the extent ascertainableCorrect
  3. CDisclose ₹5,50,000 as the current year effect by adding the future effect
  4. DMake no disclosure of the amount because it is below the profit of the year

Explanation

AS 1 requires disclosure of the amount by which the current period is affected. Where the change has a material effect in later periods, that fact is appropriately indicated in the period of the change. So ₹4,00,000 is shown for the current year and the future effect is indicated; the two are not added (Option C is wrong).

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