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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

Which of the following items of Bhavna Ltd. in 2025-26 is an ordinary activity item whose size makes separate disclosure necessary under AS 5, rather than an extraordinary item?

The Rs 9,00,000 inventory write-down for obsolescence is an ordinary activity item. It arises in the normal course of business, so AS 5 requires separate disclosure of its nature and amount if material, not classification as extraordinary like earthquake loss or expropriation.

  1. ALoss of a factory in an earthquake, an event not expected to recur
  2. BWrite-down of inventories by Rs 9,00,000 due to obsolescence in the normal course of its businessCorrect
  3. CExpropriation of a plant by a government
  4. DFine on a one-off event outside ordinary business, of unusual nature

Explanation

AS 5 treats extraordinary items as income or expenses arising from events clearly distinct from ordinary activities and not expected to recur frequently. Inventory write-down from obsolescence arises in the ordinary course, so if material, its nature and amount are disclosed separately as an ordinary item. The others are clearly distinct from ordinary activities.

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