IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Wiley IFRS: Practical Implementation Guide and Workbook

Required Prese nt the change in accounting policy in the Income Statemen t and the Statement of Changes in Equity in accorda nce with require ments of lAS 8. Solution The income statements after adju stment would be All Change Co. In c. INCOME STATEMENT For the Year Ended December 31, l OOY

200Y $250,000 95 000 155,000

200X (restated! $200,000 75000 125,000

Revenue Cost of sales Gross profit Administration costs Selling and distribution costs Net profit

50,000 15 000 QMQQ

60,000 25 000 1MQQ

Explanation In each year, Cost of Sales will be reduced by $5,000, the net impac t on the ope ning and clos ing invento– ries of change in accounting policy. The impact on the "retained earnings" included in the "statement of changes in equity" would be as fol– lows (the shaded figures represent the situation if there had been no change in acco unting policy). All Chang e Co, Inc . STATEMENT OF CHANGES IN EQUITY (Retained earnings column s only) For the Year Ended December 31, 200Y

Retained earnings

Retainea earnings

At January I, 200X, as originally stated (say) Change in accounting policy for valuation of inventory

$300,000 10000 310,000 60 000 370,000 1Q.QQQ $:HQ.QQQ

$300,000

At January I, 200X, as restated Net Profit for the year as restated

~ 355,000 Qi.QQQ $@!.QQQ

At December 31, 200X Net Profit for the year At December 31, 200Y Explanation The cumulative imp act at December 31, 200X, is an increase in retained earnings of $ 15,000 and at De– cember 3 1, 200Y, of $20,000. 8. LIMITATIONS OF RETROSPECTIVE APPLICATION 8.1 Relrospective application of a change in accounting policy need not be made if it is impracti– cable to determine either the period-specific effects or the cumulative effect of the change. "Im– practicable" is very strictly defined in the Standard in order to preclude simplistic statements used to avoid restating earlier periods. 8.2 Applying a requirement of a Standard or Interpret ation is "impracticable" when the entity cannot apply it after making every effort to do so. For a particular prior period, it is "impracticable" to apply a change in an accounting policy if • The effects of the retrospective application are not determinable; • The retrospective application requires assumptions about what management ' s intentions would have been at the time; or • The retrospective application requires significant estimates of amounts, and it is impossible to distinguish objectively, from other information, information about those estimates that • Provides evidence of circumstances that existed at that time; and • Would have been available at that time.