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

Veda Textiles Ltd. is preparing its financial statements under Ind AS. Its finance head states: 'Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.' She then lists four items: (i) valuing inventory on the weighted average cost basis; (ii) the estimated useful life of a new machine; (iii) the allowance for expected credit losses on a particular receivable balance; (iv) the fair value of an unquoted investment. Which of the items is an accounting policy rather than an accounting estimate?

Valuing inventory on the weighted average cost basis is an accounting policy, because it is a specific basis or rule applied in preparing financial statements. Useful life, credit loss allowance and fair value of an unquoted investment are monetary amounts subject to measurement uncertainty, so they are accounting estimates.

  1. AValuing inventory on the weighted average cost basisCorrect
  2. BEstimated useful life of the new machine
  3. CAllowance for expected credit losses on the receivable balance
  4. DFair value of the unquoted investment

Explanation

Under Ind AS 8, accounting policies are specific principles, bases, conventions, rules and practices. A cost formula such as weighted average is a basis of measurement, so it is a policy. The other three are monetary amounts subject to measurement uncertainty, which makes them accounting estimates.

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