Lion Ltd., engaged in manufacturing and construction contracts, prepares its financial statements for the year ended 31st March 2025. The company…

(a) As per AS 1 "Disclosure of Accounting Policies", the following requirements are relevant: All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed.Any change in an accounting policy which has a material effect should be disclosed along with the nature and reasons for such change.If the effect of such change is not ascertainable wholly or in part, the fact should be indicated. Application to Lion Ltd.: (a) 1. Change in Inventory Valuation Method (FIFO to Weighted Average): This is a change in accounting policy. The company has disclosed the change in the notes to accounts along with justification, which is in line with the disclosure requirements of AS 1, provided the impact of the change is also disclosed or indicated as unascertainable if applicable. 2. Change in Depreciation Method (SLM to WDV): As per AS 10 (Revised), a change in the method of depreciation is considered a change in accounting estimate. However, AS 1 also requires disclosure of material items affecting financial statements. Depreciation affects key financial figures such as profit, asset value, and return ratios. Even if the change is classified as an estimate, if it has a material effect, disclosure is warranted. The company's decision not to disclose the change on the grounds of immateriality may not be appropriate unless supported by clear quantitative evidence. 3. Non-Disclosure of Accounting Policy for Government Grants: Lion Ltd. has received a significant subsidy during the year but has not disclosed its accounting policy for government grants. As per AS 1, all significant accounting policies, including those for government grants, should be disclosed. Hence, non-disclosure amounts to a violation of AS 1. (b) Evaluation of "Materiality" as Justification for Non-Disclosure AS 1 emphasizes that accounting policies that are significant and changes that materially affect the financial statements should be disclosed. Materiality is assessed in terms of the potential of an item or change to influence economic decisions of users.Change in the method of depreciation affects not only profit and loss but also asset values and tax liabilities. Thus, even if the quantitative impact appears small, its qualitative impact (e.g., on comparability and trend analysis) may be significant.Therefore, the company's reliance on "materiality" as a justification for non-disclosure is not valid unless there is concrete evidence showing the impact is indeed immaterial both quantitatively and qualitatively. (c) Nature of Change from FIFO to Weighted Average The change from FIFO to Weighted Average should be treated as a change in accounting policy and not a change in accounting estimate under AS 1, and its nature and financial impact should be properly disclosed in the financial statements.