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CMA Intermediate · Financial Accounting · Disclosure of Accounting Policies (AS 1)

Sundaram Traders values its closing stock wrongly by including obsolete items at full cost. It discloses the stock valuation policy clearly in the notes. According to AS 1, what is the effect of this disclosure?

Disclosing the policy cannot remedy a wrong or inappropriate treatment of the item in the accounts. The obsolete stock remains wrongly valued despite the note, because AS 1 says disclosure is not a cure for incorrect accounting.

  1. AThe disclosure makes the treatment acceptable
  2. BThe disclosure remedies the wrong treatment only if the amount is immaterial
  3. CThe disclosure cannot remedy a wrong or inappropriate treatment of the item in the accountsCorrect
  4. DThe disclosure is unnecessary because the policy is wrong

Explanation

AS 1 states that disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts. Clear disclosure does not make the incorrect valuation acceptable. The option about immateriality is not supported by the standard.

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