Skip to content

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

Sundaram Foods Ltd. changed its policy of valuing inventory from weighted average to FIFO this year. The change has no material effect in the current year, but the management reasonably expects it to have a material effect in later periods. What does AS 1 require?

The change must be disclosed in the current period, along with the fact that a material effect is expected in later periods. AS 1 requires this even though the current year's effect is immaterial, so waiting until the impact becomes material would be wrong.

  1. ANo disclosure until the effect becomes material in a later period
  2. BDisclosure of the change in the current period, and the fact that the effect in later periods is expected to be material, if that effect is reasonably expectedCorrect
  3. CRestatement of the previous year's financial statements in all cases
  4. DDisclosure only in the auditor's report

Explanation

AS 1 states that if a change in policy has no material effect in the current period but is reasonably expected to have a material effect in later periods, the fact of the change must be appropriately disclosed in the period of change. Waiting until the effect becomes material (option A) is therefore incorrect.

Did you get it right without looking?

One question tells you little. A timed set on AS 1 Disclosure of Accounting Policies shows your real accuracy, how long you take and where you lose marks.

Practise AS 1 Disclosure of Accounting PoliciesFree diagnostic mock

More AS 1 Disclosure of Accounting Policies questions