Accounting Policies, Estimates, and Changes in Accounting Methods

Accounting Policies, Estimates And Prior Period Errors Accounting Policies Estimates Prior Period Errors LKAS 08-Accounting policies, estimates and prior period errors will be dealt with these thee components

Accounting Policies Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements

Accounting Policy Selection Accounting Policy Selection When an SLFRS specifically applies to a transaction, other event or condition In the absence of a Standard -the management shall use its judgment in developing and applying an accounting policy policies applied shall be determined by applying the SLFRS relevant to the economic decision making reliable in that the financial statements

Accounting Policy Change Change an accounting policy Required by an SLFRS/LKAS Voluntary change in accounting policy Specific transitional provisions Apply change retrospectively No Yes Apply Specific transitional provisions

Accounting Policy Change A change in accounting policy occurs if there has been a change in: recognition, e.g. an expense is now recognized rather than an asset presentation, e.g. included in cost of sales rather than administrative expenses, or measurement basis, e.g. stating assets at replacement cost rather than historical cost. depreciation is now

Estimates A 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 Effect of a change in an accounting estimate, shall be recognized prospectively by including it in profit or loss in: the period of the change, if the change affects that period only; or the period of the change and future periods, if the change affects both.

Estimates (Cont.) Valuation of land where it is accounted for at revalued cost Impairment of non-current assets Useful lives of non-current assets Pattern of economic benefits expected to be received from non-current assets for calculating depreciation Impairment of receivables (bad debts) Provision for slow moving and obsolete inventory

Activity Which of the following is a change in accounting policy as opposed to a change in estimation technique? An entity has previously charged interest incurred in connection with the construction current assets to the income statement. Following the revision of LKAS 23, and in accordance with the revised requirements of that s tandard, it now capitalizes this interest. An entity has previously depreciated vehicles using the reducing balance method at 40% pa. line method over a period of five years. An entity has previously shown certain overheads within cost of sal es. It now shows those overheads within administrative expenses. An entity has previously measured inventory at weighted average c ost. It now measures inventory using the first in first out (FIFO) met hod. of tangible non- It now uses the straight-

Prior Period Errors 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. The effect of rectifying prior period error, shall be recognized retrospectively.

Prior Period Errors (Cont.) an entity shall correct material prior period errors retrospectively in the first set of financial statements authorized for issue after their discovery by: restating the comparative amounts for the prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.