AS - 02 - Disclosure of Prior period and Extraordinary items and changes in accounting policies - Upto AY 2015-16 - Accounting Standards U/s 145(2)

[Superseded vide: Notification No. 32/2015 Dated:- 31-3-2015 ] B. Accounting Standard II relating to disclosure of Prior period and Extraordinary items and changes in accounting policies : 7. Prior period items shall be separately disclosed in the profit and loss account in the previous year together with their nature and amount in a manner so that their impact on profit or loss in the previous year can be perceived. 8. Extraordinary items of the enterprise during the previous year shall be disclosed in the profit and loss account as part of taxable income. The nature and amount of each such item shall be separately disclosed in a manner so that their relative significance and effect on the operating results of the previous year can be perceived. 9. A change in an accounting policy shall be made only if the adoption of a different accounting policy is required by statute or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee. 10. Any change in an accounting policy which has a material effect shall be disclosed. The impact of, and the adjustments resulting from such change, if material, shall be shown in the financial statements of the period in which such change is made to reflect the effect of such change. Where the effect of such change is not ascertainable, wholly or in part, the fact shall be indicated. If a change is made in the accounting policies which has no material effect on the financial statements for the previous year but which is reasonably expected to have a material effect in years subsequent to the previous years, the fact of such change shall be appropriately disclosed in the previous year in which the change is adopted. 11. A change in an accounting estimate that has a material effect in previous year shall be disclosed and quantified. Any change in an accounting estimate, which is reasonably expected to have a material effect in year subsequent to previous year, shall also be disclosed. 12. If a question arises as to whether a change is a change in accounting policy or a change in an accounting estimate, such a question shall be referred to the Board for decision. 13. For the purposes of paragraphs (7) to (12), the expressions,- ( a ) Accounting estimate means an estimate made for the purpose of preparation of financial statements which is based on the circumstances existing at the time when the financial statements are prepared; ( b ) Accounting policies means the specific accounting principles and the method of applying those principles adopted by the assessee in the preparation and presentation of financial statements; ( c ) Extraordinary items means gains or losses which arise from events or transactions which are distinct from the ordinary activities of the business and which are both material and expected not to recur frequently or regularly. Extraordinary items include material adjustments necessitated by circumstances which, though related to years preceding to the previous years, are determined in the previous year : Provided that income or expenses arising from the ordinary activities of the business or profession or vocation of an assessee, though abnormal in amount or infrequent in occurrence, shall not qualify as extraordinary item; ( d ) Financial Statements means any statement to provide information about the financial position, performance and changes in the financial position of an assessee and includes balance sheet, profit and loss account and other statements and explanatory notes forming part thereof; ( e ) Prior period items means material charges or credits which arise in the previous year as a result of errors or omissions in the preparation of the financial statements of one or more previous years: Provided that the charge or credit arising on the outcome of a contingency, which at the time of occurrence could not be estimated accurately shall not constitute the correction of an error but a change in estimate and such an item shall not be treated as a prior period item. This notification shall come into force with effect from 1st day of April, 1996 and shall, accordingly, apply to assessment year 1997-98 and subsequent assessment years.