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    Question 3: Ias 8 Policies, Estimates & Errors

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    The company changed its inventory valuation method from FIFO to weighted average which decreased retained earnings by $1.5 million as of January 1, 2014. Additionally, an error was discovered in 2014 where depreciation expense was overstated by $15 million. After making these adjustments, restated profit for 2014 was $39.7 million and retained earnings at December 31, 2014 was $106.2 million. Restated profit for 2015 was $8.8 million, increasing retained earnings to $115 million at the end of 2015.

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    Question 3: Ias 8 Policies, Estimates & Errors

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    amitsinghslideshare
    611 views2 pages
    The company changed its inventory valuation method from FIFO to weighted average which decreased retained earnings by $1.5 million as of January 1, 2014. Additionally, an error was discovered in 2014 where depreciation expense was overstated by $15 million. After making these adjustments, restated profit for 2014 was $39.7 million and retained earnings at December 31, 2014 was $106.2 million. Restated profit for 2015 was $8.8 million, increasing retained earnings to $115 million at the end of 2015.

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    IAS8-Q3

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    The company changed its inventory valuation method from FIFO to weighted average which decreased retained earnings by $1.5 million as of January 1, 2014. Additionally, an error was discovered in 2014 where depreciation expense was overstated by $15 million. After making these adjustments, restated profit for 2014 was $39.7 million and retained earnings at December 31, 2014 was $106.2 million. Restated profit for 2015 was $8.8 million, increasing retained earnings to $115 million at the end of 2015.

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    611 views2 pages

    Question 3: Ias 8 Policies, Estimates & Errors

    Uploaded by

    amitsinghslideshare
    The company changed its inventory valuation method from FIFO to weighted average which decreased retained earnings by $1.5 million as of January 1, 2014. Additionally, an error was discovered in 2014 where depreciation expense was overstated by $15 million. After making these adjustments, restated profit for 2014 was $39.7 million and retained earnings at December 31, 2014 was $106.2 million. Restated profit for 2015 was $8.8 million, increasing retained earnings to $115 million at the end of 2015.

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    of 2

    IAS 8 Question 3

    QUESTION 3: IAS 8 POLICIES, ESTIMATES & ERRORS

    Mohani Manufacturing Limited is engaged in manufacturing of spare parts for motor car
    assemblers. The audited financial statements for the year ended December 31, 2014 disclosed
    that the profit and retained earnings were $21 million and $89 million respectively. The draft
    financial statements for the year show a profit of $15 million. However, following adjustments are
    required to be made:

    (i) The management of the company has decided to change the method for valuation of raw
    materials from FIFO to weighted average. The value of inventory under each method is as
    follows:
    FIFO Weighted Average
    $m $m
    December 31, 2013 37.0 35.5
    December 31, 2014 42.3 44.5
    December 31, 2015 58.4 54.4

    (ii) In 2014, the company purchased a plant for $100 million. Depreciation on plant was
    recorded at $25 million instead of $10 million. This error was discovered after the
    publication of financial statements for the year ended December 31, 2014. The error is
    considered to be material

    Required
    Produce an extract showing the movement in retained earnings, as would appear in the statement
    of changes in equity for the year ended December 31, 2015.

    Page 1 of 2 (kashifadeel.com)
    IAS 8 Question 3

    ANSWER – QUESTION 3: IAS 8 POLICIES, ESTIMATES & ERRORS

    Mohani Manufacturing Limited


    Statement of changes in equity (restated)
    For the year ended December 31, 2015 Share Retained
    Total
    Capital earnings
    $m $m $m
    Balance at January 01, 2014 – previously reported $89 - 21 68
    Effect of change in accounting policy (1.5)
    Balance at January 01, 2014– restated 66.5
    Profit for the year – restated 39.7
    Balance at December 31, 2014 106.2
    Profit for the year 8.8
    Balance at December 31, 2015 115

    W1 2015 2014 2013


    Profit before correction 15 21
    Increase (decrease) in closing inventory (4) 2.2 (1.5)
    (Increase) decrease in opening inventory (2.2) 1.5

    Extra depreciation reversed 15

    Profit restated (or impact on RE) 8.8 39.7 (1.5)

    Page 2 of 2 (kashifadeel.com)

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