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

Rao Pharma Ltd. reports the following for the year: it has changed from the cost model to a different method for valuing a class of investments (material effect, profit increases by Rs 8,00,000). It also now follows a new method of providing for warranty, effect not ascertainable. Which statement about the disclosures under AS 1 is correct?

Disclose the investment change with its Rs 8,00,000 effect, and disclose the warranty change while stating that its effect is not ascertainable. AS 1 requires indicating when the amount cannot be determined wholly or partly, so unknown effects do not remove the disclosure.

  1. ADisclose the investment policy change with the Rs 8,00,000 effect; for the warranty change, disclose the change and state that the effect is not ascertainableCorrect
  2. BDisclose the investment policy change with the Rs 8,00,000 effect; no disclosure is required for the warranty change as the effect is unknown
  3. CDisclose neither, since disclosure of effects is optional
  4. DDisclose the Rs 8,00,000 effect only, and omit the fact of the warranty change

Explanation

For a material policy change, AS 1 requires disclosure of the change and the amount by which items are affected to the extent ascertainable. Where the amount is not ascertainable wholly or in part, that fact must be indicated. So the warranty change must still be disclosed, with a statement that the effect is not ascertainable. Option B wrongly omits it.

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