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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, which of the following is correct regarding a change in accounting policy adopted by a company because of a statutory requirement and having a material effect?

A material change in accounting policy, even one required by statute, must be disclosed with the amount of its effect, and if that amount cannot be ascertained, the fact must be stated. AS 5 does not treat such a change as extraordinary.

  1. AIts effect must be disclosed, and if the amount is not ascertainable, that fact must be statedCorrect
  2. BIt must be applied only to future transactions with no disclosure
  3. CIt must be treated as an extraordinary item
  4. DIt is not a change in policy and so needs no disclosure

Explanation

AS 5 requires disclosure of a change in accounting policy that has a material effect in the current period or later periods, including the amount of impact. If the amount is not ascertainable wholly or in part, that fact is indicated. A change required by statute is still a change in policy and is not treated as extraordinary.

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