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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Nirmal Pharma Ltd reports quarterly. In the third quarter of the year it changes its inventory valuation method, and the change is permitted under AS 2. Profit for Q3 of ₹60 lakh is computed under the new method. Profits originally reported for Q1 and Q2 under the old method were ₹40 lakh and ₹50 lakh. Had the new method been used, Q1 profit would have been ₹3 lakh lower and Q2 profit ₹5 lakh lower, and restating is practicable. What cumulative profit for the nine months should be reported in the Q3 interim report?

Cumulative nine-month profit is ₹142 lakh. AS 25 requires prior interim periods of the same year to be restated for a change in accounting policy. Q1 becomes 37 and Q2 becomes 45; adding Q3's 60 gives 142. Using the unrestated 40 and 50 would wrongly give 150.

  1. A₹142 lakhCorrect
  2. B₹150 lakh
  3. C₹158 lakh
  4. D₹147 lakh

Explanation

AS 25 requires a policy change within the financial year to be reflected by restating the prior interim periods of the current year. Restated Q1 = 40 − 3 = 37 and restated Q2 = 50 − 5 = 45. Cumulative = 37 + 45 + 60 = ₹142 lakh. Adding the unrestated figures gives ₹150 lakh, which is the key wrong choice.

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