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CA Intermediate · Advanced Accounting · AS 25 Interim Financial Reporting

Sundaram Textiles Ltd, which prepares quarterly interim financial reports under AS 25, incurred a heavy repair expense on its spinning machinery during the second quarter. The repair benefits the whole year, but the company decides to defer part of it to later quarters, although the cost would not be deferred in the annual accounts. Which statement is correct under AS 25?

Interim reports must apply the same recognition and measurement principles as annual financial statements. An expense that would not be deferred at year end cannot be deferred in an interim period just because it benefits the entire year, so the company cannot defer the repair cost.

  1. AThe deferral is permitted because the expense benefits later quarters
  2. BInterim reports must follow the same recognition and measurement principles as annual statements, so the cost cannot be deferred beyond what is allowed at year endCorrect
  3. CDeferral is permitted if the auditor consents
  4. DCosts may be deferred only in the first and third quarters

Explanation

AS 25 requires the same accounting policies in interim reports as in annual statements, and an expense is not deferred in the interim period unless it would be deferred at year end. The deferral therefore cannot be made merely because the benefit extends over the year. Auditor consent does not change the recognition principle.

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