Page 468 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chaptter 25

Notes to finanncial statemments (extrract)
Durring 20X1 tthe entity cchanged itss accountinng policy foor the treattment of
interest costs.. Previously the costss were writtten off as expenses as they weere
incuurred but thhe costs arre now cappitalised whhere they rrelate to quualifying
assets. The chhange in aaccounting policy hass been accounted for r
retroospectivelyy via a prioor period addjustment.. The new accountingg policy is
consistent with generallyy acceptedd accountinng practicee and increeases the
releevance andd reliability of reported figures.
Expplanatory note:
Thee adjustment in respeect of costss capitaliseed prior to 220X0 is deealt with ass a
resttatement too opening retained eaarnings in the 20X0 SStatement of Changees in
Equuity. The $55,200 net oof 30% taxx is shown as an adjuustment.
Thee adjustment of costss expensedd during 200X0 is dealt with in thhe restatedd
20XX0 comparaative accouunts.

Thee adjustment to 20X1 opening rretained eaarnings commprises thee overall
effeect of the 20X0 and pprior adjustments, nett of tax ($22,600 + $5,,200) × 70%%.

We must remeember to cconsider whhether the change in policy willl affect proofit
for tthe year – if this is the case it wwill also afffect the taxx charge.
Remmember to read the qquestion, aas sometimmes you willl be told too ignore the
tax effect.

Exxampple 4

An aasset was purchasedd three yeaars ago on 1 July 20XX0 for $1000,000 at wwhich
timee it was thoought that the asset hhad no ressidual valuee and a usseful econoomic
life of ten yearrs. The direectors havve decided that as a rresult of ussing the assset
morre than was originallyy planned tthe remainning useful economic c life is onlyy
five years as aat 1 July 200X3. The aasset is deepreciated on the straaight line
basis.
Reqquired:

Shoow how thhe change in accounnting estimmate will bbe recordeed in the
finaancial stattements foor the yearr ended 300 June 20XX4.

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