1) The document discusses the key aspects of Accounting Standard 1 (AS-1) regarding disclosure of accounting policies, including the meaning of accounting policies, disclosure requirements of fundamental accounting assumptions, factors to consider when selecting accounting policies, and disclosing changes in accounting policies. 2) Fundamental accounting assumptions include going concern, consistency, and accrual. Significant accounting policies adopted must be disclosed as part of the financial statements in a single place. 3) Key considerations for selecting accounting policies are providing a true and fair view, prudence, substance over form, and materiality. Any changes in accounting policies that materially affect the financial statements must be disclosed along with the financial impact.

1. GAJVEER SINGH MAHUR (GSM) AS-1
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AS-1-DISCLOSURES OF ACCOUNTING POLICIES
CONTENTS OF AS-1 Page
No.
Asked in
CA.Exam
(1) Meaning of accounting policy & its disclosure
requirements
2
(2) Meaning & disclosure requirements of
fundamental accounting assumptions
3
(3) How to select accounting policies
4
(4) How to disclose change in accounting policies
6
(5) Summary (Exam day revision)
-

2. GAJVEER SINGH MAHUR (GSM) AS-1
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1. Meaning of Accounting policy & How to disclose
Accounting policies
Accounting
policy
1) All significant accounting policies adopted in
the preparation and presentation of financial
statements should be disclosed.
2) The disclosure of the significant accounting
policies as such should form part of the
financial statements.
3) The significant accounting policies should
normally be disclosed in one place.
Note: It is not appropriate to scatter the disclosures
of accounting policies over the financial statement.
For example, it is not correct to disclose depreciation
policy as part of schedule of fixed assets and
inventory policy as part of schedule of inventory.
Note: Being a part of the financial statement, the
opinion of auditors shall cover the disclosures of
accounting policies.
How to
disclose
Accounting
policy
Page no 8

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Explanation of meaning of Accounting policy
Accounting
policies
Specific Accounting
principles
Methods of applying
those accounting
principles in preparation
& presentation of
Financial Statement
Eg. Stock should be
valued at COST or NRV ,
whichever is less
and
Eg, cost of stock may be
calculated by using FIFO or
Weight average method
2. Meaning & disclosure requirements of Fundamental
Accounting Assumptions
Meaning of
fundamental
Accounting
Assumptions
(FAA)
1) It is generally assumed that financial
statements are prepared on the basis of
fundamental accounting assumption.
2) Fundamental accounting assumptions are:
i) Going concern
ii) Consistency
iii) Accrual
Going concern The financial statements are normally prepared on
the assumption that an enterprise will continue its
operations in the foreseeable future and neither

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there is intention, nor there is need to materially
curtail the scale of operations.
Note: foreseeable future means coming one or two
years.
Consistency The principle of consistency refers to the practice of
using same accounting policies for similar
transactions in all accounting periods.
Accrual Under this basis of accounting, transactions are
recognised as soon as they occur, whether or not
cash or cash equivalent is actually received or paid.
Note: Section 209(3)(b) of the Companies Act makes
it mandatory for companies to maintain accounts on
accrual basis only.
How to
disclose FAA
1) If fundamental accounting assumptions has
been followed, then no need to disclose in
financial statement.
2) If fundamental accounting assumptions has
not been followed, then this fact must be
disclosed in financial statement.
3. How to select accounting policies
Primary factor Selected accounting policies should present true &
fair view of state of affairs of B/S & P/L A/c.
Secondary
factor
Following factors should be considered for selecting
accounting policies:
i) Prudence

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ii) Substance over form
iii) Materiality
Prudence 1) Selected accounting policies should consider
prudence concept.
2) As per prudence concept, recognise all future
losses but don’t recognise future income.
3) The most common example of exercise of
prudence in selection of accounting policy is
the policy of valuing inventory at lower of cost
and net realisable value.
Eg. Provision for warranty.
Substance over
form(law)
1) Selected accounting policies should record
transactions on the basis of substance of
transaction not only on the basis of legal form.
2) Transactions and other events should be
accounted for and presented in accordance
with their substance and financial reality and
not merely with their legal form.
3) The most common example of exercise of
substance over form in selection of accounting
policy is the policy of recording assets in the
books of hire purchaser though he is not the
legal owner of the assets
Materiality 1) Selected accounting policies should disclose all
material items.
Note: Material items-those items, the knowledge of
which might influence the decisions of the user of
the financial statement.
Note: examples of materiality as per (REVISED
SCH-VI)

6. GAJVEER SINGH MAHUR (GSM) AS-1
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i) A company shall disclose by way of notes
additional information regarding any item of
income or expenditure which exceeds 1% of the
revenue from operations or ₹1,00,000
whichever is higher
ii) A company shall disclose in Notes to Accounts,
shares in the company held by each
shareholder holding more than 5 per cent
shares specifying the number of shares held.
4. How to disclose change in accounting policies (AS Text)
Reason of
change in
accounting
policies
A change in an accounting policy should be made only if
the adoption of a different accounting policy is:
1) Required by statute
or
2) For compliance with an accounting standard
or
3) If it is considered that the change would result in a
more appropriate presentation of the financial
statements of the enterprise.
How to
disclose
1) Any change in the accounting policies which
 has a material effect in the current period
or
 which is reasonably expected to have a
material effect in a later period should be
disclosed.
2) In the case of a change in accounting policies,

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which has a material effect in the current period,
the amount by which any item in the financial
statements is affected by such change should also
be disclosed to the extent ascertainable.
3) Where such amount is not ascertainable, wholly or
in part, the fact should be indicated.
Example of
disclosure of
change in
accounting
policy
1) A simple disclosure that an accounting policy has
been changed is not of much use for a reader of a
financial statement.
2) The effect of change should therefore be disclosed
wherever ascertainable.
3) Suppose a company has switched over to weighted
average formula for ascertaining cost of
inventory, from the earlier practice of using FIFO.
If the closing inventory by FIFO is ₹ 2 lakh and
that by weighted average formula is ₹1.8 lakh, the
change in accounting policy pulls down profit and
value of inventory by ₹ 20,000. The company may
disclose the change in accounting policy in the
following manner:
‘The company values its inventory at lower of cost and
net realisable value. Since net realisable value of all
items of inventory in the current year was greater than
respective costs, the company valued its inventory at
cost.
In the present year the company has changed to
weighted average formula, which better reflects the
consumption pattern of inventory, for ascertaining
inventory costs from the earlier practice of using FIFO
for the purpose.

8. GAJVEER SINGH MAHUR (GSM) AS-1
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The change in policy has reduced profit and value of
inventory by ₹ 20,000’.
Explanation of disclosure of Accounting policies
AS-1
Disclosure
of
Accounting
policies
Disclosure of
fundamental
Accounting
Assumptions
Selection
of
Accounting
policy
Disclosure
of change
in
Accounting
policy
Disclose all
significant
accounting
policies at one
place & should
form part of
Financial
Statement
1) FAA are:
i) Going concern
ii) Consistency
iii) Accrual
2) Disclose FAA if
not followed
1) Primary
factor:
--- True & fair
view of B/S &
P/L A/c
2) secondary
factor:
i) prudence
ii) substance
over form
iii) Materiality
1) old policy
2) New policy
3) reason of
change
4) financial
impact of such
change

9. GAJVEER SINGH MAHUR (GSM) AS-1
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QUESTION 1
Indicate any three areas in respect for which different accounting policies may be
adopted by different enterprises.
or
Enumerate various areas in which different polices could be adopted.
or
Mention any six areas in which different accounting policies may be adopted by
different enterprises.
Solution:
Major Areas in which different accounting policies may be adopted by different
enterprises includes:
(1) Method of depreciation, depletion and amortisation, e.g., WDV method, SLM
method.
(2) Treatment of expenditure during construction, e.g., capitalization, written off,
deferment
(3) Conversion or translation of foreign currency items, e.g. average rate, TT buying
rate.
(4) Valuation of inventories, e.g., FIFO, weighted average method.
(5) Treatment of goodwill, e.g., capitalization method, super profit method
(6) Valuation of investment, e.g., lower of cost and fair value
(7) Treatment of retirement benefits, e.g., Pay as you go
QUESTION 2
Write a short note on fundamental accounting assumptions.
QUESTION 3
What are the major considerations, which govern the selection and application of
accounting policies?
OR
What are the major considerations governing the Accounting Policies?
QUESTION 4
Write a short note on discloser of accounting policy.
OR
Indicate the requirements with regard to discloser of accounting policies.
OR

10. GAJVEER SINGH MAHUR (GSM) AS-1
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‘Discloser of significant accounting policy adopted in the preparation and presentation
of the financial statements enhance the intangibility of financial statements.’ Discuss.
OR
Briefly describe the requirements of Accounting Standard-1 in regard to discloser of
significant accounting policies.
OR
Indicate the requirements with regard to discloser of accounting policies. Can discloser
of accounting policies or of changes therein remedy a wrong or inappropriate
treatment of the item in the accounts?