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CMA Final · Corporate Financial Reporting · Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

Rohan Steels Ltd's financial statements for the year ended 31 March 2026 were approved. In 2026-27 it discovers that closing inventory at 31 March 2026 was overstated by ₹6,00,000 due to a counting error; there was no effect on opening inventory of 2025-26, and tax is ignored. Profit for 2025-26 was reported as ₹40,00,000. Which statement is correct for the 2026-27 financial statements?

The material inventory overstatement is a prior period error, corrected retrospectively by restating the 2025-26 comparatives. Profit for that year becomes ₹34,00,000 and inventory is reduced by ₹6,00,000, with the nature of the error and the adjustment amounts disclosed. It is not run through current year profit.

  1. AReduce 2026-27 profit by ₹6,00,000 as a change in estimate
  2. BRestate the 2025-26 comparative profit to ₹34,00,000 and adjust inventory and related balances, treating it as a material prior period error, with required disclosuresCorrect
  3. CDisclose only in notes and make no restatement since the year is closed
  4. DAdjust opening retained earnings of 2025-26 by ₹6,00,000

Explanation

A material prior period error is corrected retrospectively by restating comparative amounts for the prior period in which it occurred, if it arose then. The overstatement affected only 2025-26, so its profit becomes 40,00,000 − 6,00,000 = ₹34,00,000. The opening balance of 2025-26 is unaffected, so the last option is wrong. Running it through current profit is not permitted for a material error.

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