CMA Intermediate · Financial Accounting · Disclosure of Accounting Policies (AS 1)
Rao & Co. changed its method of depreciation from the straight-line method to the written-down value method this year. Which statement best reflects the AS 1 position on the consistency assumption?
Accounting policies are assumed to be consistent from one period to another, so a change in the depreciation method is a departure that should be disclosed. Such disclosure cannot remedy a wrong or inappropriate treatment of an item in the accounts.
- AConsistency is violated and nothing needs to be disclosed, since the change is permitted
- BConsistency applies only to inventory valuation policies
- CAccounting policies are assumed consistent from one period to another, and a departure from this should be disclosedCorrect
- DDisclosure of the change can correct the effect of an inappropriate treatment
Explanation
AS 1 assumes policies are consistent from one period to another, and if a fundamental assumption is not followed the fact should be disclosed. Disclosure of policies or changes cannot remedy a wrong or inappropriate treatment, so option D is incorrect. Option B is wrong because consistency covers all accounting policies.
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