Accounting Standards (AS) 5 (revised 1997) Net Profit or Loss for the Period, Prior Period Items and

Changes in Accounting Po icies Paragraphs !"#$C%I&$ SC!P$ '$(INI%I!NS N$% P)!(I% !) L!SS (!) %*$ P$)I!' 1-3 4 5-27 8-11 12-14 15-1" 2%-27 28-33

Extraordinary Items Profit or Loss from Ordinary A ti!ities Prior Period Items #hanges in A o$nting Estimates

C*AN+$S IN ACC!,N%IN+ P!LICI$S

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its ob ective and the Preface to the Statements of Accounting Standards !." &he fo''o(ing is the text of the re!ised A o$nting )tandard *A)+ 5, -.et Profit or Loss for the Period, Prior Period Items and #hanges in A o$nting Po'i ies/, iss$ed 0y the #o$n i' of the Instit$te of #hartered A o$ntants of India1 &his re!ised standard omes into effe t in respe t of a o$nting periods ommen ing on or after 11411""2 and is mandatory in nat$re1 2 It is 'arified that in respe t of a o$nting periods ommen ing on a date prior to 11411""2, A o$nting )tandard 5 as origina''y iss$ed in .o!em0er, 1"82 *and s$0se3$ent'y made mandatory+ (i'' app'y1 !-.ective &he o04e ti!e of this )tatement is to pres ri0e the 'assifi ation and dis 'os$re of ertain items in the statement of profit and 'oss so that a'' enterprises prepare and present s$ h a statement on a $niform 0asis1 &his enhan es the ompara0i'ity of the finan ia' statements of an enterprise o!er time and (ith the finan ia' statements of other enterprises1 A ording'y, this )tatement re3$ires the 'assifi ation and dis 'os$re of extraordinary and prior period items, and the dis 'os$re of ertain items (ithin profit or 'oss from ordinary a ti!ities1 It a'so spe ifies the a o$nting treatment for hanges in a o$nting estimates and the dis 'os$res to 0e made in the finan ia' statements regarding hanges in a o$nting po'i ies1 Sco/e 10 This Statement should be applied by an enterprise in presenting profit or loss from ordinary activities, extraordinary items and prior period items in the statement of profit and loss, in accounting for changes in accounting estimates, and in disclosure of changes in accounting policies. 21 &his )tatement dea's (ith, among other matters, the dis 'os$re of ertain items of net

profit or 'oss for the period1 &hese dis 'os$res are made in addition to any other dis 'os$res re3$ired 0y other A o$nting )tandards1 31 &his )tatement does not dea' (ith the tax imp'i ations of extraordinary items, prior period items, hanges in a o$nting estimates, and hanges in a o$nting po'i ies for (hi h appropriate ad4$stments (i'' ha!e to 0e made depending on the ir $mstan es1 'efinitions 10 The following terms are used in this Statement with the meanings specified: Ordinary activitiesare any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of, incidental to, or arising from, these activities. Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur fre uently or regularly. !rior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. "ccounting policies are the specific accounting principles and the methods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements. Net Profit or Loss for the Period 50 "ll items of income and expense which are recognised in a period should be included in the determination of net profit or loss for the period unless an "ccounting Standard re uires or permits otherwise. 21 .orma''y, a'' items of in ome and expense (hi h are re ognised in a period are in '$ded in the determination of the net profit or 'oss for the period1 &his in '$des extraordinary items and the effe ts of hanges in a o$nting estimates1 70 The net profit or loss for the period comprises the following components, each of which should be disclosed on the face of the statement of profit and loss: a. b. profit or loss from ordinary activities# and extraordinary items.

$2traordinar3 Items 40 Extraordinary items should be disclosed in the statement of profit and loss as a part of net profit or loss for the period. The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived. "1 5irt$a''y a'' items of in ome and expense in '$ded in the determination of net profit or 'oss for the period arise in the o$rse of the ordinary a ti!ities of the enterprise1 &herefore, on'y on rare o asions does an e!ent or transa tion gi!e rise to an

extraordinary item1 1%1 6hether an e!ent or transa tion is 'ear'y distin t from the ordinary a ti!ities of the enterprise is determined 0y the nat$re of the e!ent or transa tion in re'ation to the 0$siness ordinari'y arried on 0y the enterprise rather than 0y the fre3$en y (ith (hi h s$ h e!ents are expe ted to o $r1 &herefore, an e!ent or transa tion may 0e extraordinary for one enterprise 0$t not so for another enterprise 0e a$se of the differen es 0et(een their respe ti!e ordinary a ti!ities1 7or examp'e, 'osses s$stained as a res$'t of an earth3$a8e may 3$a'ify as an extraordinary item for many enterprises1 9o(e!er, 'aims from po'i yho'ders arising from an earth3$a8e do not 3$a'ify as an extraordinary item for an ins$ran e enterprise that ins$res against s$ h ris8s1 111 Examp'es of e!ents or transa tions that genera''y gi!e rise to extraordinary items for most enterprises are:

atta hment of property of the enterprise; or an earth3$a8e1

Profit or Loss from !rdinar3 Activities 150 $hen items of income and expense within profit or loss from ordinary activities are of such si%e, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately. 131 A'tho$gh the items of in ome and expense des ri0ed in paragraph 12 are not extraordinary items, the nat$re and amo$nt of s$ h items may 0e re'e!ant to $sers of finan ia' statements in $nderstanding the finan ia' position and performan e of an enterprise and in ma8ing pro4e tions a0o$t finan ia' position and performan e1 <is 'os$re of s$ h information is sometimes made in the notes to the finan ia' statements1 141 #ir $mstan es (hi h may gi!e rise to the separate dis 'os$re of items of in ome and expense in a ordan e (ith paragraph 12 in '$de: a1 the (rite-do(n of in!entories to net rea'isa0'e !a'$e as (e'' as the re!ersa' of s$ h (rite-do(ns; a restr$ t$ring of the a ti!ities of an enterprise and the re!ersa' of any pro!isions for the osts of restr$ t$ring; disposa's of items of fixed assets; disposa's of 'ong-term in!estments; 'egis'ati!e hanges ha!ing retrospe ti!e app'i ation; 'itigation sett'ements; and other re!ersa's of pro!isions1

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Prior Period Items

151 The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived. 121 &he term -prior period items/, as defined in this )tatement, refers on'y to in ome or expenses (hi h arise in the $rrent period as a res$'t of errors or omissions in the preparation of the finan ia' statements of one or more prior periods1 &he term does not in '$de other ad4$stments ne essitated 0y ir $mstan es, (hi h tho$gh re'ated to prior periods, are determined in the $rrent period, e1g1, arrears paya0'e to (or8ers as a res$'t of re!ision of (ages (ith retrospe ti!e effe t d$ring the $rrent period1 171 Errors in the preparation of the finan ia' statements of one or more prior periods may 0e dis o!ered in the $rrent period1 Errors may o $r as a res$'t of mathemati a' mista8es, mista8es in app'ying a o$nting po'i ies, misinterpretation of fa ts, or o!ersight1 181 Prior period items are genera''y infre3$ent in nat$re and an 0e disting$ished from hanges in a o$nting estimates1 A o$nting estimates 0y their nat$re are approximations that may need re!ision as additiona' information 0e omes 8no(n1 7or examp'e, in ome or expense re ognised on the o$t ome of a ontingen y (hi h pre!io$s'y o$'d not 0e estimated re'ia0'y does not onstit$te a prior period item1 1"1 Prior period items are norma''y in '$ded in the determination of net profit or 'oss for the $rrent period1 An a'ternati!e approa h is to sho( s$ h items in the statement of profit and 'oss after determination of $rrent net profit or 'oss1 In either ase, the o04e ti!e is to indi ate the effe t of s$ h items on the $rrent profit or 'oss1 Changes in Accounting $stimates 2%1 As a res$'t of the $n ertainties inherent in 0$siness a ti!ities, many finan ia' statement items annot 0e meas$red (ith pre ision 0$t an on'y 0e estimated1 &he estimation pro ess in!o'!es 4$dgments 0ased on the 'atest information a!ai'a0'e1 Estimates may 0e re3$ired, for examp'e, of 0ad de0ts, in!entory o0so'es en e or the $sef$' 'i!es of depre ia0'e assets1 &he $se of reasona0'e estimates is an essentia' part of the preparation of finan ia' statements and does not $ndermine their re'ia0i'ity1 211 An estimate may ha!e to 0e re!ised if hanges o $r regarding the ir $mstan es on (hi h the estimate (as 0ased, or as a res$'t of ne( information, more experien e or s$0se3$ent de!e'opments1 &he re!ision of the estimate, 0y its nat$re, does not 0ring the ad4$stment (ithin the definitions of an extraordinary item or a prior period item1 221 )ometimes, it is diffi $'t to disting$ish 0et(een a hange in an a o$nting po'i y and a hange in an a o$nting estimate1 In s$ h ases, the hange is treated as a hange in an a o$nting estimate, (ith appropriate dis 'os$re1 560 The effect of a change in an accounting estimate should be included in the determination of net profit or loss in: a. b. 241 A hange in an a o$nting estimate may affe t the $rrent period on'y or 0oth the the period of the change, if the change affects the period only# or the period of the change and future periods, if the change affects both.

$rrent period and f$t$re periods1 7or examp'e, a hange in the estimate of the amo$nt of 0ad de0ts is re ognised immediate'y and therefore affe ts on'y the $rrent period1 9o(e!er, a hange in the estimated $sef$' 'ife of a depre ia0'e asset affe ts the depre iation in the $rrent period and in ea h period d$ring the remaining $sef$' 'ife of the asset1 In 0oth ases, the effe t of the hange re'ating to the $rrent period is re ognised as in ome or expense in the $rrent period1 &he effe t, if any, on f$t$re periods, is re ognised in f$t$re periods1 550 The effect of a change in an accounting estimate should be classified using the same classification in the statement of profit and loss as was used previously for the estimate. 221 &o ens$re the ompara0i'ity of finan ia' statements of different periods, the effe t of a hange in an a o$nting estimate (hi h (as pre!io$s'y in '$ded in the profit or 'oss from ordinary a ti!ities is in '$ded in that omponent of net profit or 'oss1 &he effe t of a hange in an a o$nting estimate that (as pre!io$s'y in '$ded as an extraordinary item is reported as an extraordinary item1 570 The nature and amount of a change in an accounting estimate which has a material effect in the current period, or which is expected to have a material effect in subse uent periods, should be disclosed. &f it is impracticable to uantify the amount, this fact should be disclosed. Changes in Accounting Po icies 281 =sers need to 0e a0'e to ompare the finan ia' statements of an enterprise o!er a period of time in order to identify trends in its finan ia' position, performan e and ash f'o(s1 &herefore, the same a o$nting po'i ies are norma''y adopted for simi'ar e!ents or transa tions in ea h period1 590 " change in an accounting policy should be made only if the adoption of a different accounting policy is re uired by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate presentation of the financial statements of the enterprise. 3%1 A more appropriate presentation of e!ents or transa tions in the finan ia' statements o $rs (hen the ne( a o$nting po'i y res$'ts in more re'e!ant or re'ia0'e information a0o$t the finan ia' position, performan e or ash f'o(s of the enterprise1 311 &he fo''o(ing are not hanges in a a1 o$nting po'i ies :

the adoption of an a o$nting po'i y for e!ents or transa tions that differ in s$0stan e from pre!io$s'y o $rring e!ents or transa tions, e1g1, introd$ tion of a forma' retirement grat$ity s heme 0y an emp'oyer in p'a e of ad ho ex-gratia payments to emp'oyees on retirement; and the adoption of a ne( a o$nting po'i y for e!ents or transa tions (hi h did not o $r pre!io$s'y or that (ere immateria'1

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650 "ny change in an accounting policy which has a material effect should be disclosed. The impact of, and the ad'ustments resulting from, such change, if material, should be shown in the financial statements of the period in which

such change is made, to reflect the effect of such change. $here the effect of such change is not ascertainable, wholly or in part, the fact should be indicated. &f a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. 660 " change in accounting policy conse uent upon the adoption of an "ccounting Standard should be accounted for in accordance with the specific transitional provisions, if any, contained in that "ccounting Standard. (owever, disclosures re uired by paragraph )* of this Statement should be made unless the transitional provisions of any other "ccounting Standard re uire alternative disclosures in this regard. )
> A 'imited re!ision (as made in 2%%1, p$rs$ant to (hi h paragraph 33 has 0een added in this standard *see footnote 3+1 &he )tandard (as origina''y iss$ed in .o!em0er 1"82 and (as tit'ed -Prior Period and Extraordinary Items and #hanges in A o$nting Po'i ies/1 Attention is spe ifi a''y dra(n to paragraph 413 of the Prefa e, a ording to (hi h A o$nting )tandards are intended to app'y on'y to items (hi h are materia'1
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?eferen e may 0e made to the se tion tit'ed -Anno$n ements of the #o$n i' regarding stat$s of !ario$s do $ments iss$ed 0y the Instit$te of #hartered A o$ntants of India/ appearing at the 0eginning of this #ompendi$m for a detai'ed dis $ssion on the imp'i ations of the mandatory stat$s of an a o$nting standard1
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As a 'imited re!ision to A) 5, the #o$n i' of the Instit$te de ided to add this paragraph in A) 5 in 2%%11 &his re!ision omes into effe t in respe t of a o$nting periods ommen ing on or after 11412%%1 *see -&he #hartered A o$ntant/, )eptem0er 2%%1, pp1 342+1
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