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CA Final · Financial Reporting · Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Taraknath Textiles Ltd is preparing its financial statements under Ind AS. The finance head describes a list of items: (i) the policy of valuing inventory using the weighted average cost formula, (ii) the rule that revenue is recognised on delivery, (iii) the monetary amount of provision for expected credit losses on receivables, which depends on estimating future defaults. Which of the items are accounting policies as defined in Ind AS 8, as opposed to accounting estimates?

Items (i) and (ii) are accounting policies, because they are principles, bases or rules applied in preparing financial statements. Item (iii) is an accounting estimate, because it is a monetary amount subject to measurement uncertainty. So only the cost formula and the revenue recognition basis are accounting policies.

  1. A(i) and (ii) onlyCorrect
  2. B(iii) only
  3. C(i) and (iii) only
  4. D(i), (ii) and (iii)

Explanation

Ind AS 8 defines accounting policies as the specific principles, bases, conventions, rules and practices applied in preparing and presenting financial statements. The cost formula and the revenue recognition basis are such principles or bases. Accounting estimates are monetary amounts in financial statements subject to measurement uncertainty, so the credit loss provision amount is an estimate. Option (i), (ii) and (iii) wrongly treats a monetary amount as a policy.

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