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

Rohini Ltd. changes its policy for valuing a class of investments in the current year. The change has no material effect this year, but it is reasonably expected to have a material effect in later periods. Which is correct under AS 1?

When a change in accounting policy has no material effect now but is reasonably expected to have a material effect in later periods, AS 1 requires the fact of the change to be appropriately disclosed in the period in which the change is adopted.

  1. ANo disclosure is needed until the effect becomes material
  2. BDisclose the change in the current period, and also disclose its expected material effect in later periods, if reasonably expectedCorrect
  3. CRestate the prior period financial statements for the later effect
  4. DDisclose only in the board's report and not in the financial statements

Explanation

AS 1 states that where the change has no material effect in the current period but is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. Waiting until the effect arises is incorrect.

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