The Accountant of Heera Ltd. has sought your opinion with relevant reasons, whether the following transactions will be treated as change in…
CA Intermediate · Advanced Accounting · RTP · May 2025
The Accountant of Heera Ltd. has sought your opinion with relevant reasons, whether the following transactions will be treated as change in Accounting Policy or not for the year ended 31st March, 2024. Please advise him in the following situations in accordance with the provisions of relevant Accounting Standard; (i) Till the previous year the furniture was depreciated on straight line basis over a period of 5 years. From current year, the useful life of furniture has been changed to 3 years. (ii) Management decided to pay pension to those employees who have retired after completing 5 years of service in the organization. Such employees will get pension of 20,000 per month. Earlier there was no such scheme of pension in the organization. (iii) During the year ended 31st March, 2024, there was change in cost formula in measuring the cost of inventories.
Suggested Answer and Working Notes:
(i) Change in useful life of furniture from 5 years to 3 years is a change in estimate and is not a change in accounting policy. (ii) Adoption of a new accounting policy for events or transactions which did not occur previously should not be treated as a change in an accounting policy. Hence the introduction of new pension scheme is not a change in accounting policy. (iii) Change in cost formula used in measurement of cost of inventories is a change in accounting policy.
Topics: AS 5
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