Page 40 - CA_ELG_Volume I_ELG-Sample

1.30 Theoretical Framework Principles and Practices of Accounting Paper 1

1.18.2 Change in Accounting Policies

A change in accounting policies should be made only when the following conditions are
fulfilled:

ƒ Required for compliance with Accounting Standards or statute.

ƒ Change would result in more appropriate presentation of financial statement.

Example: Interest is capitalised now which was earlier not in practice, may increase or
decrease the net profit. The effect of change due to change in accounting policy need to
be quantified to enable the users to understand the financial statement.

Exercises 1.4

Q. S Ltd decided to change its Answer: A change in Accounting policy should
accounting policy relating to valuation be made when
of inventories from FIFO to weighted A) Required for Compliance with AS
average method – so that higher prof-
its are reflected and better perfor- B) It leads to more appropriate presentation.
mance can be shown. Change in accounting policy to show higher

profits is not a valid ground for making a
Comment. change. Hence the action of S Ltd is inappro-

priate.

1.19 Measurement

Measurement is an important aspect of accounting. Accounting basically is measurement
of information. Primarily transactions and events are measured in monetary terms.

Mnemonics

Three elements of measurement – ISD
a) Identification of objects and events to be measured (I)

b) Selection of standard scale (S)

c) Dimension of measurement standard – evaluate (D)

Past, present and future information is required for decision-making purposes. In account-
ing, the scale of measurement is “money”. But, money is “volatile” as a measurement scale as
the rate of exchange fluctuates between two currencies over the period of time.

Information of one year measured in monetary terms may not be comparable with that
of another year as the same quantity of money may not have the ability to buy the same

Copyright © Veranda Learning Solutions | www.verandalearning.com/ca