Theoretical FrameworkQ-2 | Accounting PoliciesQuestion 4645 of 110
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When changes in accounting policies are permitted? What disclosures are to be made whenever change takes place? [June 2024, 1 Mark]

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Detailed Solution & Explanation

Changes in accounting policies: Changes are permitted: (As per AS-5: Net Profit or loss for the period, Prior period items & Changes in accounting policy) ♦ To comply with law ♦ To comply with an accounting standard ♦ To give better information and true & fair picture Disclosure to be made whenever change takes place: ♦ Any change in an accounting policy which has a material effect should be disclosed. ♦ Reason for change, which can be any of the above. ♦ The amount by which any item in the financial statements is affected by such change should also be disclosed. ♦ This disclosure is necessary as change in accounting policy violates the fundamental accounting assumption of consistency. ♦ Where such amount is not ascertainable, wholly or in part, the fact should be indicated. ♦ If such change has no material effect on the financial statements for the current period but is reasonably expected to do so in the later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. Examples of change in accounting policy: 1. Change from straight line method of depreciation to WDV method. 2. Making provision for doubtful debts on the basis of age analysis rather than ad hoc provision. 3. Change from completed contract method to percentage of completion method to account for construction to comply with AS-7 (Revised). 4. Changes in the method of measurement of percentage of completion as at balance sheet date. 5. Change in method of amortization of intangible asset to reflect the revised pattern benefits from it. 6. Re-estimating residual value of leased asset. 7. Change from LIFO to FIFO method of ascertaining cost of inventory when AS-2 was revised.

About This Chapter: Theoretical Framework

Paper

Paper 1: Accounting

Weightage

5-10%

Key Topics

Policies, Standards (Ind AS), Vocabulary

This chapter covers Policies, Standards (Ind AS), Vocabulary and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 5-10% weightage. Focus on understanding core concepts rather than memorizing.

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