(1) According to Accounting Standard-5: Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, Prior Period Items are "income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. In the present case rectification of error in stock valuation is a prior period item. Rs. 14.5 lakh must be added to the opening stock of 1.4.2002. It is also necessary to show Rs. 14.5 lakh as a prior period adjustment in the Profit and Loss Account below the line. A separate disclosure of this item as a prior period item is also required as per AS-5. (ii) According to Accounting Standard-8: Accounting for Research and Development, the amount of research and development cost should be charged as an expense of the period in which they are incurred. However, such costs may be deferred to future periods, if there is a reasonable indication that such costs together with expected production, selling and administration costs are likely to be more than covered by related future revenues/benefits. 930 In the present case, the company spent Rs. 45 lakh for publicity and research on a new product which was marketed but proved to be failure. It is apparent that in future there will be no related further revenue/benefit because of the failure of the product. Hence, the total amount of Rs. 45 lakh should be charged as an expense and disclosed in the Profit and Loss Account On 1st December, 2002, Vishwakarma Construction Co. Ltd. undertook a contract to 1.8 construct a building for Rs. 85 lakh. On 31st March, 2003 the company found that it had already spent Rs. 64,99,000 on the construction. Prudent estimate of additional cost for completion was Rs. 32,01,000. What is the additional provision for foreseeable loss, which must be made in the final accounts for the year ended 31st March, 2003 as per provisions of Accounting Standard-7: "Accounting for Construction Contracts"? (CA Final, Nov, 2003)