1. Advanced Financial Accounting FIN-611
Mian Ahmad Farhan
Lecture 29
IAS-10
Accounting Policies, Changes in Accounting Estimates & Errors

2. Accounting Policies, Changes in Accounting Estimates & Errors
IAS-10
Accounting Policies, Changes in Accounting Estimates & Errors

3. Accounting Policies Similar or related issues in standard.
IASB definition, Recognition criteria or Measurement basis Can not be determined

4. Accounting Policies
Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements.

5. Change in Accounting Estimate
Change in accounting estimate is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities. Changes in accounting estimates result from new information or new developments and, accordingly, are not corrections of errors.

6. Prior Period Errors
Prior period errors are omissions from, and misstatements in the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when financial statements for those periods were authorized for issue; and could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

7. Retrospective Application
Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied i.e. effect of change in accounting policy recording previous period is to be calculated.

8. Retrospective Restatements
Retrospective Restatements is correcting the recognitions, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred i.e. correction of error is to be made by restating the previous income statement and opening balance of previous periods’ retained earnings.

9. Question
Service Store Limited has prepared the following information for the year ended 31March 2005.

10. Profit & Loss Account 2005 2004 Rs. Rs. Sales 75,000 72,750
Rs. Rs.
Sales ,000 72,750
Cost of sales (50,000) (48,500)
Gross profit (1/3 of sales) 25,000 24,250
Operating Expenses (7,500) (7,750)
17,500 16,500
Income 30% (5,250) (4,950)
Profit after tax 12,250 11,550

11. Statement of Retained Earnings
Rs. Rs.
Opening Balance 11,000 7,500
Profit for the year 12,250 11,550
23,250 19,050
Dividend (10,250) (8,050)
Closing Balance 13,000 11,000

12. The company used to account for revenue on dispatch of goods
The company used to account for revenue on dispatch of goods. The company observes that the sales return are increasing year by year. Due to a dishonest employee, quantity received by customers was often less than quantity dispatched.
Along with administrative action the company also changed its policy for recognition of revenue and decided to account for revenue after receiving acknowledgement from customers.
Relevant for the previous years since the change policy was adopted Rs. 9,000 decrease in sales resulting a decrease of Rs. 3,000 in Profit before tax.
For the current year 2005 goods dispatched by the company amounted to Rs. 1,500 which are acknowledged in next period, are included in profit & loss account already prepared. For pervious year 2004 this amount was Rs. 1,000.
Required: Account for the above change in accounting policy.