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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Sundaram Foods Ltd changes its accounting policy for inventory valuation in the third quarter of the financial year ending 31 March 2027, and the change is permitted under an Accounting Standard. Its first-quarter and second-quarter interim reports were already published under the old policy. Under AS 25, how should the change be reflected in the interim report for Q3?

Sundaram Foods should restate the earlier interim periods of the current financial year, where practicable, on the new inventory policy and disclose the nature and effect of the change. AS 25 requires consistency of policies within the year, so a prospective-only application or silence in interim reports is not acceptable.

  1. ARestate the prior interim periods of the current financial year on the new policy, if practicable, and disclose the nature and effect of the changeCorrect
  2. BApply the new policy only to Q3 and later periods without any restatement or disclosure
  3. CAdjust the effect only in the annual accounts and leave interim reports silent
  4. DRestate only the previous financial year's annual accounts and not the earlier interims

Explanation

AS 25 requires the same accounting policies in interim statements as in the latest annual statements, unless a policy change is made after the latest annual statements. When a change is made, the prior interim periods of the current financial year are restated where practicable, and the nature and effect of the change are disclosed. Applying only prospectively without disclosure or staying silent is not permitted.

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