ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS
Prior Period Errors
Example: VAT that should have been claimed on a prior year expense was not.
Entity name
Statement of profit or loss and other comprehensive income
20.2 (cy) 20.1 (py)
Profit before tax (A)
Income tax expense figures are (B)
Profit for the year uneffected
Total comprehensive income for the year ( C)
(A) The VAT claimable should be added to the profit before tax
(B) The claimable amount x 28 % should be added to the income tax expense
Entity name
Extract from the statement of changes in equity for the year ended x
Balance at beg. of 20.0
Changes in equity for 20.1
Total comprehensive income for the year (restated) '( C)
Dividends paid
Balance at end of 20.1 Note : (C ) changes due to the change above
changes in equity for 20.2 but the other figures remain the same
Total comprehensive income for the year
Balance at end of 20.2
Entity name
NOTES FOR THE YEAR ENDED …
1. Error in respective of prior year
Correction of error in respect of VAT which was incorrectly included in other expenses for 20.1
The effect of the correction of this error on the results of 20.1 are as follows:
Decreases in other expenses VAT claimable
Increase in current tax expense VAT claimable x 28%
Increase in profit change in ( C)
Increase in VAT input account VAT claimable
Increase in current taxation due (SA Revenue Services) VAT claimable x 28%
Increase in equity change in ( C)
General Journal Dr Cr
End of 20.1
VAT input account VAT claimable
Other expenses VAT claimable
Correction of error
Current tax expense (P/L) VAT x 28%
Current tax payable / SA Revenue Service (SFP) VAT x 28%
Tax effect of correction of error in 20.1
Change in Accounting policy
Example: a change in inventory valuation
Entity name
Statement of profit or loss and other comprehensive income
Note 20.3 (cy) 20.2 (py)
Profit before tax (A) (A)
Income tax expense 2 -(A) x28 %= (F) - (A) x 28 % = (D)
Profit for the year
Total comprehensive income for the year
(A) Given profit + the calculated difference from the prior year to the current year (B)
Difference calculation : 20.1 Diff. 20.2 Diff. 20.3
New method + +
Old method - -
Change in profit due to change in inv. = ( C1) (B1) = ( C2) (B2) -
Tax effect - (change x 28%) - (change x 28%) - (change x 28%)
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