CA INTER — ACCOUNTING STANDARDS
AS 1: Disclosure of Accounting Policies
QUESTION PAPER
Total Questions: 5 | Attempt ALL questions
Q.1. Discuss Disclosure requirements in the following cases as per AS 1:
• Accountant of A Ltd. charges a probable loss of losing a suit in books of accounts and also
disclosed the same fact in financial statements. The probability of losing the suit is 25%.
• Accountant of A Ltd. capitalized all the revenue expenses of repair and maintenance during
the year to Plant & Machinery and is also disclosing the same as company policy in financial
statements.
• A Ltd. has followed accrual basis of accounting since incorporation. The chief accountant
also disclosed this fact in financial statements.
• A Ltd. was providing for after sales expenses @ 2% of sales for covering expenses during
the warranty period. Now A Ltd. observes that actual after sales expenses were much less
as compared to provision because of better technology used in manufacturing of the
products. Now, the Board of A Ltd. decides to account for these expenses as and when they
occur. Sales during the period are ₹ 50 crores.
(MTP 1, MAY 26)
Q.2. An entity presents the following items in its trial balance. Classify the items as
current or non-current assets in accordance with Accounting Standard 1 (AS 1) and,
where AS 1 is silent, refer to Schedule III of the Companies Act, 2013:
Item Description Classification (Current / Non-
Current)
Security deposits paid to electricity company
Raw materials inventory
Prepaid rent (for 14 months)
Fixed deposits with 18-month maturity
(MTP 2, SEP 25)
Q.3. Lion Ltd., engaged in manufacturing and construction contracts, prepares its
financial statements for the year ended 31st March 2025. The company follows
historical cost for fixed assets, FIFO for inventory valuation, and percentage of
completion method for revenue recognition in construction contracts. During the
year, the management changes:
• The inventory valuation method from FIFO to Weighted Average due to volatility in raw
material prices.
• The depreciation method from Straight Line Method (SLM) to Written Down Value (WDV)
citing better reflection of asset usage.
The company discloses the change in inventory method in notes, but does not disclose the change
in depreciation method, stating that it is not material.
Additionally, the company has not disclosed its accounting policy on recognition of government
grants, though it has received a significant subsidy this year.
You are required to:
• Identify and explain violations (if any) of AS 1 in the above case.
• Critically evaluate whether "materiality" can be used as a justification for non-disclosure of a
change in accounting policy.
• Justify, would the change from FIFO to Weighted Average be treated as a change in
accounting estimate or accounting policy under AS 1?
(RTP, SEP 25)
Q.4. What do you mean by 'Accrual' in reference to AS-1? Also, specify any three
reasons for 'Accrual Basis of Accounting'.
(RTP, MAY 25)
Q.5. ABC Ltd. was making provision for non-moving inventories based on no issues
for the last 12 months up to 31.3.2023.
The company wants to provide during the year ending 31.3.2024 based on technical evaluation:
Particulars Amount
Total value of inventory ₹ 100 lakhs
Provision required based on 12 months issue ₹ 3.5 lakhs
Provision required based on technical evaluation ₹ 2.5 lakhs
Does this amount to change in Accounting Policy? Can the company change the method of
provision?
(RTP, JAN 25)
— END OF QUESTION PAPER —