FIFO to weighted average

Para 5 of Ind AS 8 defines Accounting Policies as “Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.”

Para 13 of Ind AS 8 states that such Accounting Policies need to be applied consistently “An entity shall select and apply its accounting policies consistently for similar transactions, other events and conditions............”

Para 14 b of Ind AS 8 states that an entity shall change its Accounting Policy only if the change “results in the financial statements providing reliable and more relevant information about the effects of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.”

Change in Inventory Valuation method from FIFO to Weighted Average will mean change in Accounting Policy of the Company. The Company can bring about such change only if it is more reliable and gives more relevant information about the effects of transactions in stocks.

The changes in Accounting Policy should be adopted retrospectively. This would mean the change of Inventory Valuation and retained earnings from the first period itself. In effect, it means the adjustment is as if the new accounting policy had always been applied. (Para 22 of Ind AS 8)

Disclosures:

The reason for change in Policy, the amount of adjustment for the current period and each prior period presented, for each financial statement the line items that are affected and if retrospective application is impracticable, an explanation thereto.

Regards / Mohit

The required Disclosures

The IAS requires the financial statements to disclose the following:

1.     The accounting policies adopted and cost formula used

2.     The carrying amount of inventories: the total amount and the amount in classifications appropriate to the entity

3.     The carrying amount of inventories carried at fair value less costs to sell

4.     The amount of inventories recognised as an expense during the period

5.     Any write-down of inventories recognised as an expense in the period

6.     Any reversal of any write-down recognised as a reduction in the amount of inventories recognised as an expense in the period

7.       The circumstances or events that led to the reversal of a write-down of

Change in accounting policies

If the accounting policies have changed, the following disclosures need to be made in the notes that are attached to the financial statements.

For changes in accounting policy due to requirements of standards:

i. The name of the standard

ii. The date of application of the standard or interpretation and its descripttion

iii. The nature of the change in accounting policy

iv. The transitional provisions that might have an effect on future periods

v. The changes in earnings per share during the current period and prior periods

vi. The amount of the adjustment relating to periods before those presented

vii. If retrospective application is impracticable, the reasons for this

viii. Descripttion of how and from when the change in accounting policy was applied

The financial statements of subsequent periods need not disclose these facts again.

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