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

Narmada Pharma Ltd changes its depreciation method this year. The effect on current year is not ascertainable, but the change is expected to have a material effect in later periods. What does AS 1 require?

Narmada Pharma must disclose the change in the current year. If the effect cannot be ascertained, it must state that fact, and a reasonably expected material future effect must also be appropriately disclosed. Waiting until later periods or disclosing only when ascertainable does not comply with AS 1.

  1. ANo disclosure until the later periods are reached
  2. BDisclosure of the change in the current year only if the effect is ascertainable
  3. CDisclosure of the fact of the change in the current year, and where the effect is not ascertainable, that fact must be indicated; a material future effect must also be appropriately disclosedCorrect
  4. DRetrospective restatement of all earlier years' accounts

Explanation

AS 1 states that where the effect of a change is not ascertainable wholly or in part, that fact should be indicated. If a change has no material effect now but is reasonably expected to have a material effect later, the fact of the change should be appropriately disclosed in the period of change. So disclosure is needed now, not deferred or conditional on ascertainability.

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