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TOPIC 8 - Accounting Policies, Estimates and Errors (IAS 8)

This document discusses key concepts related to accounting policies, estimates, and errors under IAS 8 including: 1. Changes in accounting estimates such as salvage values should be accounted for prospectively, not retrospectively. 2. Accounting policies are conventions and practices used in financial statement presentation that define concepts like accounting errors and estimates. 3. Changes in accounting policies should generally be accounted for retrospectively through restatement while changes in estimates are accounted for prospectively.

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182 views2 pages

TOPIC 8 - Accounting Policies, Estimates and Errors (IAS 8)

This document discusses key concepts related to accounting policies, estimates, and errors under IAS 8 including: 1. Changes in accounting estimates such as salvage values should be accounted for prospectively, not retrospectively. 2. Accounting policies are conventions and practices used in financial statement presentation that define concepts like accounting errors and estimates. 3. Changes in accounting policies should generally be accounted for retrospectively through restatement while changes in estimates are accounted for prospectively.

Uploaded by

Hạ Nguyễn Cao Nhật
Copyright
© © All Rights Reserved
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TOPIC 8: Accounting policies, estimates and errors (IAS 8)

1. When an independent valuation expert advises an entity that the salvage value of its
plant and machinery had drastically changed and thus the change is material, the
entity should
a.Ignore the effect of the change on annual depreciation, because changes in salvage values would
normally affect the future only since these are expected to be recovered in future.
b.Change the depreciation charge and treat it as a correction of an error.
c.Change the annual depreciation for the current year and future years.
d.Retrospectively change the depreciation charge based on the revised salvage value.
2. Specific principles bases conventions rules and practices applied in presenting
financial statements. This defines:
a.accounting errors
b.Accounting policies
c.Prospective application
d.Accounting estimates
3. Change in accounting policy does not include
a.Change in useful life from 10 years to 7 years.
b.Change of method of valuation of inventory from FIFO to weighted-average.
c.Change from the practice (convention) of paying as Christmas bonus one month’s salary to staff
before the end of the year to the new practice of paying one-half month’s salary only.
d.Change of method of valuation of inventory from weighted-average to FIFO.
4. Under IFRS, a voluntary change in accounting method may only be made by a
company if:
a.Management prefers the new method.
b.A new standard mandates the change in method.
c.There is no prohibition of the method in the standards.
d.The new method provides reliable and more relevant information.
5. XYZ Inc. changes its method of valuation of inventories from weighted-average
method to first-in, first-out (FIFO) method. XYZ Inc. should account for this change
as
a.A change in estimate and account for it prospectively.
b..A change in accounting policy and account for it retrospectively
c.Account for it as a correction of an error and account for it retrospectively.
d.A change in accounting policy and account for it prospectively
6. Applying a new policy to transactions other events and conditions as if that policy had
always been applied. This is:
a.Retrospective restatement
b.Retrospective application
c.Change in accounting estimate
d.Change in accounting policies
7. When a public shareholding company changes an accounting policy voluntarily, it has
to
a.Treat it prospectively and adjust the effect of the change in the current period and future periods.
b.Treat the effect of the change as an extraordinary item.
c.Account for it retrospectively.
d.Inform shareholders prior to taking the decision
8. When it is difficult to distinguish between a change of estimate and a change in
accounting policy, then an entity should
a.Treat the entire change as a change in accounting policy.
b.Treat the entire change as a change in estimate with appropriate disclosure.
c.Apportion, on a reasonable basis, the relative amounts of change in estimate and the change in
accounting policy and treat each one accordingly.
d.Since this change is a mixture of two types of changes, it is best if it is ignored in the year of the
change; the entity should then wait for the following year to see how the change develops and then
treat it accordingly.
9. Correcting the recognition measurement and disclosure of amounts in financial
statements as if a prior-period error had never occurred. This is:
a.Retrospective restatement
b.Change in accounting policies
c.Retrospective application
d.Change in accounting estimate
10. Adjustment of the carrying amount of an asset or a liability or the consumption of an
asset. This defines
a.A change in accounting estimates
b.A change in accounting policies
c. Acconting policies
d.Misstatements

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