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CS Executive · Corporate Accounting and Financial Management · Accounting Standards

Which of the following situations would require a disclosure under AS 1 regarding fundamental accounting assumptions?

Disclosure of the fundamental assumptions is needed only when one is not followed. A company accounting for some items on a cash basis departs from the accrual assumption, so that fact must be disclosed. Following going concern, consistency and accrual requires no separate disclosure.

  1. AAccrual basis is followed for all revenues and expenses
  2. BThe enterprise is treated as a going concern and consistent policies are applied year after year
  3. CA company prepares its accounts on a cash basis for some items, departing from the accrual assumptionCorrect
  4. DThe company discloses its inventory valuation policy in the notes

Explanation

AS 1 states that if a fundamental accounting assumption is not followed, the fact should be disclosed. Following accrual, going concern and consistency needs no separate disclosure because they are presumed. Preparing some items on a cash basis departs from accrual, so disclosure is needed. Disclosing the inventory policy is ordinary policy disclosure, not a departure from an assumption.

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