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

Sagar Textiles Ltd. follows the accrual basis, going concern and consistency as fundamental accounting assumptions. While preparing its financial statements for the year ended 31 March 2027, the accountant did not disclose that the accounts were prepared on a going concern basis, and no disclosure of consistency was made either. Under AS 1, what is the correct position?

Under AS 1, when the fundamental accounting assumptions of going concern, consistency and accrual are followed, no specific disclosure is needed. Disclosure becomes necessary only when any of these assumptions is not followed in preparing the financial statements, so Sagar Textiles' omission is acceptable.

  1. ADisclosure of the fundamental assumptions is required in every case, even when they are followed
  2. BIf fundamental accounting assumptions are followed in the financial statements, specific disclosure is not requiredCorrect
  3. COnly the going concern assumption must always be disclosed, the others need not be
  4. DDisclosure is required only if the company is listed

Explanation

AS 1 states that if the fundamental accounting assumptions of going concern, consistency and accrual are followed in financial statements, specific disclosure is not required. Disclosure is needed only if a fundamental assumption is not followed. Hence the omission is acceptable.

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