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CMA Foundation · Fundamentals of Financial and Cost Accounting · Four Frameworks of Accounting and Forms of Organization

Ravi Textiles Pvt. Ltd. changes its method of charging depreciation on machinery from straight line to written down value. Which view is consistent with the Indian regulatory framework for financial reporting?

A change in accounting policy, such as moving from straight line to written down value depreciation, is permitted only if required by law or a standard, or if it gives a more appropriate presentation. The change and its effect must be disclosed in the financial statements.

  1. AThe change needs no disclosure because depreciation is an internal matter
  2. BThe change is made only if required by statute, by an accounting standard, or for a more appropriate presentation, and its effect is disclosedCorrect
  3. CThe change is allowed only by passing a special resolution of creditors
  4. DThe change must be hidden within other expenses to maintain consistency

Explanation

Under the accounting standard on accounting policies, a change in policy is made only if required by statute or a standard, or if it results in a more appropriate presentation of the financial statements. The change and its effect must be disclosed. Treating it as an internal matter with no disclosure ignores the disclosure requirement.

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