Page 470 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Chaptter 25

Nottes to financial stateements (exxtract)
During 20X4 the entity cchanged itss accountinng estimatee for econoomic usefuul life
of an asset. Previously the asset hhad a usefuul economiic life of tenn years buut
due to the assset being used more than originnally planned, the lifee has reducced
to fivve years aas at 1 Julyy 20X3. This resulted in the annnual deprecciation chaarge
increeasing fromm $10,0000 pa to $144,000 pa.
Expplanatory nnote:

Thee adjustments are onlly requiredd to future ddepreciatioon chargess from the ddate
of thhe change, i.e. 1 Julyy 20X3. Wee do not neeed to change the deepreciationn
already chargeed, so no aadjustmentts will be mmade to rettained earnnings b/fwdd
and the compaaratives will not be changed. Therefore, tthe SOFP reflects thee
histoorical deprreciation off $30,000 ccharged upp-to the daate of the cchange plus
the new chargge for the ccurrent yeaar of $14,0000.

Exxampple 5

Durring 20X1 BBeta discoovered thatt certain prroducts thaat had beenn sold during
20XX0 were inccorrectly inncluded in inventory aat 31 Deceember 20XX0 at $6,5000.
Betta’s accounnting recorrds show thhe following results foor 20X1 annd 20X0:

20X1 20X0
$ $
Revvenue 104,0000 773,500
Cosst of sales (86,5000) (553,500)
–––––––– ––––––––
Proofit before ttax 17,5000 220,000
Incoome tax exxpense (5,2500) (6,000)
–––––––– ––––––––
Proofit for the pperiod 12,2500 114,000
In 220X0 opening retaineed earningss was $20,000 and cclosing retaained earnings
wass $34,000. The incomme tax ratee is 30%.
Reqquired:

Shoow how thhe correction of the prior period error wwill be reccorded in tthe
finaancial stattements foor the yeaar ended 31 Decembber20X1.
Commparativees should also be prrepared.

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