(ii) As per AS 5 (Revised), change in accounting policy can be made for many reasons, one of these is for compliance with an accounting standard. In the instant case, the company has changed its accounting policy in order to conform with the AS 2 (Revised) on Valuation of Inventories. Therefore, a disclosure is necessary in the following lines by way of notes to the annual accounts for the year 2008-2009 "To be in conformity with the Accounting Standard on Valuation of Inventories issued by ICAI, interest has been excluded from the valuation of closing stock unlike preceding years. Had the same principle been followed in previous years, profit for the year and its corresponding effect on the year end net assets would have been higher by Rs. 3,00,000." 1) It is that revision of wages took place on 1st September, 2009 with retrospective effect from 30.9.2008. Therefore wages payable for the half year from 1.10.2008 to 31.3.2009 cannot be taken as an error or omission in the preparation of financial statements and hence this expenditure cannot be taken as a prior period item. Additional wages liability of Rs. 7,50,000 (for 1/2 years @ Rs. 5,00,000 per annum) should be included in current year's wages. It may be mentioned that additional wages is an expense arising from the ordinary activities of the company. Although abnormal in amount, such an expense does not qualify as an extraordinary item. However, as per Para 12 of AS 5 (Revised), when items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. Q. 10. Briefly explain, as per relevant Accounting Standard: (a) TVSM company has taken a Transit Insurance Policy. Suddenly in the year 2008-2009 the percentage of accident has gone up to 7% and the company wants to recognise insurance claim as revenue in 2008-2009 in accordance with relevant Accounting Standards. Do you agree? (b) SCL Ltd. sells agriculture products to dealers. One of the condition of sale is that interest is payable at the rate of 2% p.m., for delayed payments. Percentage of interest recovery is only 10% on such overdue outstanding due to various reasons. During the year 2008-2009 the company wants to recognise the entire interest receivable. Do you agree? (c) ABC Ltd. was making provision for non-moving stocks based on no issues for the last 12 months upto 31.3.2008 The company wants to provide during the year ending 31.3.2009 based on technical evaluation : Total value of stock Rs. 100 lakhs Provision required based on 12 months issue Rs. 3.5 lakhs Provision required based on technical evaluation Rs. 2.5 lakhs Does this amount to change in Accounting Policy? Can the company change the method of provision? (d) XYZ is an export oriented unit and was enjoying tax holiday upto 31.3.2008. No provision for deferred tax liability was made in accounts for the year ended 31.3.2008. While finalising the accounts for the year ended 31.3.2009, the Accountant says that the entire deferred tax liability upto 31.3.2008 and current year deferred tax liability should be routed through Profit and Loss Account as the relevant Accounting Standard has already become mandatory from 1.4.2007. Do you agree