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

Sundaram Textiles Ltd. prepares financial statements on the going concern basis, and has followed the same method of depreciation for years. Which of the following is NOT one of the fundamental accounting assumptions recognised by AS 1?

Prudence is not a fundamental accounting assumption under AS 1. The three fundamental assumptions are going concern, consistency and accrual. Prudence, together with substance over form and materiality, is a consideration used when selecting and applying accounting policies, so it is the odd one out.

  1. AGoing concern
  2. BConsistency
  3. CPrudenceCorrect
  4. DAccrual

Explanation

AS 1 recognises three fundamental accounting assumptions: going concern, consistency and accrual. Prudence is one of the three considerations governing the selection and application of accounting policies (prudence, substance over form, materiality), not a fundamental assumption. Hence prudence is the item that is not a fundamental assumption.

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