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CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Under AS 5, a change in an accounting estimate should be accounted for as follows:

A change in accounting estimate is recognised prospectively. Its effect is included in net profit in the period of the change, and in later periods if they are affected, within the same income or expense classification used for the original estimate, not as a prior period item.

  1. ABy restating prior periods and showing the effect in reserves
  2. BIn the period of change and, if it affects future periods, in those future periods too, with the effect included in the same income or expense category as previously usedCorrect
  3. COnly in future periods, never in the current period
  4. DAs a prior period item shown separately below net profit

Explanation

AS 5 requires the effect of a change in estimate to be included in the determination of net profit in the period of change, and in later periods if affected, in the same category as the original estimate. It is not a prior period item and no restatement is made.

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