CMA Intermediate · Financial Accounting · Disclosure of Accounting Policies (AS 1)
Shree Textiles Ltd. signed a sale agreement for goods on 28 March, but the goods were still lying unsold with a customer's agent on a sale-or-return basis at year end, though the legal invoice was raised. The accountant wants to ignore the invoice's legal form and examine the commercial reality. Which AS 1 consideration is being applied?
The accountant is applying substance over form. AS 1 requires that the accounting treatment and presentation of transactions be governed by their substance and not merely by their legal form, so the invoice alone does not decide the treatment.
- AMateriality
- BPrudence
- CSubstance over formCorrect
- DGoing concern
Explanation
AS 1 says the accounting treatment and presentation of transactions should be governed by their substance and not merely by legal form. Looking beyond the invoice to the real commercial position applies this consideration. Prudence concerns not anticipating profits and providing for losses.
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