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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
Revenue
Cost of sales
Gross profit
Administration costs
Selling and distribution costs
Net profit
200Y
$250,000
95 000
155,000
60,000
25 000
1MQQ
200X (restated!
$200,000
75000
125,000
50,000
15 000
QMQQ
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
~
355,000
Qi.QQQ
$@!.QQQ
$300,000
$300,000
10000
310,000
60 000
370,000
1Q.QQQ
$:HQ.QQQ
At January I, 200X, as originally stated (say)
Change in accounting policy for valuation of inventory
At January I, 200X, as restated
Net Profit for the year as restated
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.