100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
Previously searched by you
Previously searched by you
logo
Summary IAS 8 Changes in Accounting estimates, accounting policy and errors R80,00
Add to cart
Quickly navigate to
Preview
  2.  
  3. Stellenbosch University (SUN)
  4.  
  5. Financial Accounting 379

Summary

Summary IAS 8 Changes in Accounting estimates, accounting policy and errors
 2 purchases

Summary of IAS 8 Changes in Accounting estimates, accounting policy and errors for third year BAcc course

Preview 3 out of 22  pages

Document information

  • August 26, 2020
  • 22
  • 2019/2020
  • Summary

Subjects

Written for

All documents for this subject (51)

Seller

avatar-seller
stelliesaccounting

Reviews received

Content preview

IAS 8: ACCOUNTING POLICY, CHANGES IN ACCOUNTING
ETIMATES AND ERRORS
IAS 8


SCOPE (.04)
− Choice of accounting policy
− Accounting for:
o (i) Changes in accounting policy (E.g. Inventory: Avg → FIFO)
o (ii) Changes in accounting estimates (E.g. Depr/useful lives/allowance for credit losses)
o (iii) Corrections of prior period errors (E.g. theft that effected your figures)
DEFINITIONS (.05)
− Accounting policy: E.g. IAS 40 → CP model v FV model (choose) vs IAS 2 → Measure at lowest of
CO and NRV
− Change in accounting estimates: Uncertainty; revised on an annual basis (ensure reflection of the
most accurate estimate)
− Material: Will be given in a question
− Prior period error: Relates to errors that occur in the past
− Methods of treatment:
o [1] Retrospective application:
▪ Adjust comparative figures
▪ Change in accounting policy and errors
o [2] Prospective application:
▪ Apply change to current and future periods
• NOT what happened in the past, only from this period going forward
▪ Change/Update in accounting estimate (due to the fact that new info came to mind)

ACCOUNTING POLICIES (.07-.31):
− Selection and application of accounting policies:
o .07: If an IFRS specifically applies to an item, the acc policy applied will be determined by
the specific IFRS applied and relevant Guidance that was issued with the IFRS.
▪ E.g. IAS 16 for PPE → CP or rev model (thus look to the specific standard that is
applicable for the item)
o .10-.12: Not standard → IAS 8 applies
− Consistency of application:
o .13: E.g. For categories of item i.e. Raw materials @ FIFO, Fin goods @ weighted avg cost
− Changes in accounting policies:
o .14 (a) Compulsory [E.g. change to always capitalized borrowing costs in terms of the
standard] or (b) Voluntary [E.g. change the recognition of Investment instruments]
o .16 (a) [E.g. Building → admin (IAS 16) → change intention to rent out → Investment
property (IAS 40)] & (b) [E.g. First time purchase of PPE and now will apply that
accounting policy for the first time]
o Applying changes in accounting policy:
▪ .19
▪ Retrospective application (.22)
• Vs. Prospective application:
o Apply new policy to transactions occurring after the date that the
policy is changed
o Current and going forward
o If impracticable
o Limitations on retrospective application (.23-.27):
▪ .23: E.g. due to record holding




1

,IAS 1, IAS 8: EXAMPLE OF FINANCIAL STATEMENTS

Change in accounting policy:
Previously company X expensed borrowing cost through profit and loss, but a change in the accounting
policy requires that borrowing cost must be capitalised. Retrospective application.

Assume borrowing costs have already correctly been taken into account in the calculation of current tax.

The amount of borrowing costs was as follows:
2009 CY 2008 PY 2007
R R R
Borrowing cost 28 20 25

Old: Correction:
Dt Interest expenses (P/L) Dt Asset (SFP)
Ct Bank (SFP) Ct Interest expense (P/L)

CHANGE IN ACCOUTING POLICY:

1) Which line items are being effected? In both the SCI and SCE
o SCI: Interest expense/Finance cost
o SFP: Specific asset
2) What is happening with the line item? Increase or Decrease?
o Finance cost: decrease
o Asset: increase
3) What is the amounts by which the relevant items will increase or decrease?
o Finance cost: Change/movement in the year (period effect)
• 2009: 28 000 → decrease
• 2008: 20 000 → decrease
• 2007: 25 000 → decrease (should have ben capitalised against asset)
o Asset: Cumulative effect (not a period effect)
• 2009: Increase 73 000
• 2008: Increase with 45 000
• 2007: Increase asset with 25 000
4) Brackets or not in note disclosure?
o SCI: What is the effect on profit?
• Expense is decreasing, thus the profit increases (THUS NO BRACKETS)
o SFP: What is the effect on equity? E = A - L
• Asset is increasing, thus the equity will also increase (THUS NO BRACKETS)
5) Tax
o Current: No change, interest deduction in year incurred
• Accounting treatment does not affect the tax calculation
o Deferred tax
• Old policy had no effect on deferred tax
• New policy
▪ 2007 asset:
- CA: +25 000 & TB: 0 (Not deductible in future)
- TD: 25 000 taxable (liability) X 28% = 7000 Ct
▪ 2008 asset:
- CA: +45 000 & TB: 0
- TD: 45 000 taxable X 28% = 12 600 Ct
- MOVEMENT: Increase liability
▪ Dt Income tax expense (P/L) 5600
▪ Ct Deferred tax (SFP) 5600
▪ 2009 asset:
- CA: +73 000 & TB:0
- TD: 73 000 taxable X 28% = 20 440 Ct
- MOVEMENT: Increase liability
▪ Dt Income tax expense (P/L) 7840
▪ Ct Deferred tax (SFP) 7840


2

, STATEMENT OF COMPREHENSIVE INCOME OF XXX FOR THE YEAR ENDED XXX
(Above-mentioned matters have already been take correctly into account)
2009 2008
Notes
Profit before finance cost and tax 599.20 450.20
Finance cost (40) (30)
Profit before tax 2 559.20 420.20
Tax (168) (126)
Profit for the period 391.20 294.20
Other comprehensive income - -
Total comprehensive income for the period 391.20 294.20

STATEMENT OF CHANGES IN EQUITY OF XXX FOR THE YEAR ENDED XXX
Retained earnings
2009 2008
Opening balance 1 284 1 000
(before above-mentioned matters have been taken into account)
Dividends paid - (3)

NOTES TO THE FINANCIAL STATEMENTS OF XXX FOR THE YEAR ENDED XXX

1. Accounting policy
Financial statements are prepared in accordance with …. The accounting policy followed corresponds
to that of previous periods, except for the change in …, as disclosed in note 4.

2. Included in profit before tax: 2009 2008

Expenses:
• Depreciation - vehicles 80 60
- machines 40 50

4. Changes in accounting policy
Nature and reason………………..
2009 2008 1/1/2008
Effect w.r.t.
2007.
Decrease in finance cost/interest 28 20
(Increase) in tax expense (Not split to (7.8) (5.6)
current and deferred tax)
Increase in profit for the period 20.2 14.4
Effect in the SCI → Movement for the year
Profit increase: No ()
Profit decrease: ()

Increase in equity- beginning of period 32.4 18
Increase in equity- end of period 52.6 32.4
Effect on SCE

Increase in machinery 73 45 25
(Increase) in current tax liability - - -
(Increase) in deferred tax liability (20.4) (12.6) (7)
Increase in equity 52.6 32.4 18
Effect in SFP
Equity increase: No ()
Equity decrease: ()

Increase in basic earnings per share xx cent xx cent




3

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying this summary from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller stelliesaccounting. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy this summary for R80,00. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

70113 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy summaries for 15 years now

Start selling

Recently viewed by you

Exam (elaborations) ·

(0)

GA Tattoo Exam Guide UPDATED ACTUAL Questions and CORRECT Answers
R80,00  2x  sold
  • (0)
Add to cart
Added