Page 239 - F1 Integrated Workbook STUDENT 2018

IAS 2, 8, 10, 34 and IFRS 8

Notes to financial statements (extract)

During 20X1 the entity changed its accounting policy for the treatment of
interest costs. Previously the costs were written off as expenses as they were
incurred but the costs are now capitalised where they relate to qualifying
assets. The change in accounting policy has been accounted for
retrospectively via a prior period adjustment. The new accounting policy is
consistent with generally accepted accounting practice and increases the
relevance and reliability of reported figures.

Explanatory note:

The adjustment in respect of costs capitalised prior to 20X0 is dealt with as a
restatement to opening retained earnings in the 20X0 Statement of Changes
in Equity. The $5,200 net of 30% tax is shown as an adjustment.

The adjustment of costs expensed during 20X0 is dealt with in the restated
20X0 comparative accounts.

The adjustment to 20X1 opening retained earnings comprises the overall
effect of the 20X0 and prior adjustments, net of tax ($2,600 + $5,200) × 70%.

We must remember to consider whether the change in policy will affect profit
for the year – if this is the case it will also affect the tax charge.

Remember to read the question, as sometimes you will be told to ignore the
tax effect.

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