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    Ias 8 Review

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    Ias 8 Review

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    smsechu
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    5 views2 pages

    Ias 8 Review

    Uploaded by

    smsechu

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    IAS 8: REVISION QUESTIONS

    Question 1
    Which of the following is a change in accounting policy as opposed to a change in estimation
    technique?
    i) An entity has previously charged interest incurred in connection with the construction of
    tangible non-current assets to the statement of profit or loss. Following the revision of
    IAS 23, and in accordance with the revised requirements of that standard, it now
    capitalises this interest.
    ii) An entity has previously depreciated vehicles using the reducing balance method at 40%
    pa. It now uses the straight-line method over a period of five years.
    iii) An entity has previously shown certain overheads within cost of sales. It now shows
    those overheads within administrative expenses.
    iv) An entity has previously measured inventory at weighted average cost. It now measures
    inventory using the first in first out (FIFO) method.

    Question 2
    a) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors lays down criteria
    for the selection of accounting policies and prescribes circumstances in which an entity may
    change an accounting policy. The standard also deals with accounting treatment of changes
    in accounting policies, changes in accounting estimates and correction of prior period errors.
    Requirement:
    i) Define an accounting policy according to IAS 8. Explain briefly the difference
    between an accounting policy and an accounting estimate.
    ii) Outline the accounting treatment required to record (1) a change in accounting policy,
    (2) a change in accounting estimate and (3) the correction of an error.

    b) The following are summaries of the draft financial statements of Sigma plc for financial year
    ended 31 July 2015 together with the comparative figures for 2014. During August 2015,
    prior to the signing off of the financial statements, it was discovered that a fraud had been
    taking place in the company for the previous three years.
    The chief financial officer had been misappropriating monies paid to the company by its
    customers, the amounts instead appearing as receivables. The effect of the fraud was that
    amounts shown in the financial statements as receivables need to be written off as they were
    in fact paid. There is no prospect of recovering the money as the employee lost it gambling
    and is now bankrupt. The amounts were as follows for each period ending on the following
    dates:

    1
    31 July 2013: TZS 14,000
    31 July 2014: TZS 16,000
    31 July 2015: TZS 20,000.

    Statements of Profit or Loss and Other Comprehensive Income for year ended 31 July:
    2015 2014
    TZS ’000 TZS ’000
    Revenue 300 275
    Cost of Sales (225) (212)
    Gross Profit 75 63
    Expenses (30) (26)
    Profit for year 45 37

    Statements of Changes in Equity (Retained Earnings only) for year ended 31 July:
    2015 2014
    TZS ’000 TZS ’000
    Balance 1 August 258 236
    Profit for the year 45 37
    Dividends declared (16) (15)
    Balance 31 July 287 258

    Statements of Financial Position as at 31 July:


    2015 2014
    TZS ’000 TZS ’000
    Non-current Assets 294 306
    Net Current Assets 143 102
    437 408
    Equity Share Capital 150 150
    Retained Earnings 287 258
    437 408
    Requirement:
    Restate the above financial statements, including comparatives, incorporating the
    adjustments you deem necessary as a result of the fraud. Ignore the effect of taxation.
    Disclosure notes are not required.

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