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IAS 8 Homework Assignment (Suggested Solution)

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6 views3 pages

IAS 8 Homework Assignment (Suggested Solution)

Uploaded by

obenakemtiku15
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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FINANCIAL ACCOUNTING 379

IAS 8: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND


ERRORS

Homework assignment (Suggested Solution)

a) The change of the method according to which the allowance for credit losses will be
calculated, will be treated as a change in accounting estimate in terms of IAS 8.

The effect of a change in accounting estimate will be recognised prospectively by


including the profit and loss in the period of change if the change only affects that
period (IAS 8.36(a).

Therefore, since the change in the estimate of the credit losses will only affect the
current period’s profit and loss, since the effect future effect cannot be calculated,
the effect will only be included in the current year (2017) profit and loss.

b) 30/09/17 Dr Allowance for credit losses (SFP) 1 700


Cr Movement: Allowance (P/L) 1 700

Calculations New estimate Old estimate Adjustment


2017 O/B 18 375 18 375
(612 500 x 3%) (612 500 x 3%)
2017 utilized (14 600) (14 600)
Movement 8 925 OR 10 625 OR 1 700 OR
2017 C/B 12 700 14 400 1 700
(12 months: (480 000 x 3%)
not significant )
c) Notes to the financial statements of Jump Ltd. for the year ended 30 September 2017
[1]

4. Prior period error

During the year it was determined that installation costs were erroneously recognised
as an expenditure instead of it being capitalised. Consequently property, plant and
equipment has been understated since 2015 Subsequently the comparative figures
were adjusted.

The effect of the correction of the error was as follows:


2016 1/10/2015
$
R R
Decrease in other expenses/ installation cost 48 000
(Increase) in income tax expenditure (13 440)
Increase in profit for the year 34 560

Increase in retained earnings - beginning of year 41 040


Increase in retained earnings- end of year 75 600

Increase in machinery/ property, plant and equipment 105 000 57 000


(Increase) in deferred-tax liability/
(Decrease) in deferred tax asset (29 400) (15 960)
Increase in retained earnings 75 600 41 040

Calculations: Deferred tax (not marked)


p/l
CA TB TD DT movement

Before error
30/09/2015 600 000 480 000 120 000 33 600 cr 33 600 dr
30/09/2016 600 000 360 000 240 000 67 200 cr 33 600 dr

After
correction
30/09/2015 657 000 480 000 177 000 49 560 cr 49 560 dr
30/09/2016 705 000 360 000 345 000 96 600 cr 47 040 dr
FAQs from prior years:

Question:
With regards to part (c), why is there no increase in depreciation and accumulated depreciation?
My thinking was that since there is an increase in the carrying amount of the asset, that there will be
an increase in depreciation and accumulated depreciation.

Answer:
The scenario states the machine is only ready for use on 1 October 2016 (i.e. at the start of the current
2017 year). Depreciation only starts when the asset is available for use. Therefore no depreciation
was required in prior years.

With regards to matter 2, the instalation cost obviosly need to be capitalised against the Machinery.

In the notes Expences will decrease and Machinery will increase but why does depreciation not
increase?

The scenario states the machine is only ready for use on 1 October 2016 (i.e. at the start of the current
2017 year). Depreciation only starts when the asset is available for use. Therefore no depreciation was
required in prior years.

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