66 / 488
Chapter
6/
Accounting Policies, Changes in Accounting Estimates and Errors (lAS
8)
57
Net book value at January 1, 20XS:
$400,000 - ($36,000
x
4
years)
$256,000
Revised annual depreciation for 20XS and future years:
($256,000 - $46,000) / 7
=
$30,000
10.5
Disclosures with Respect to Changes in Accounting Estimates
An entity should disclose amounts and nature of changes in accounting estimates. In addition, it
should also disclose changes relating to future periods, unless impracticable. The definition of "im–
practicable," which has been explained for the purposes of "change in accounting policy," applies
in case of "changes in accounting estimates" as well.
11.
CORRECTION OF PRIOR-PERIOD ERRORS
11.1 Errors can arise in recognition, measurement, presentation, or disclosure of items in finan–
cial statements. If financial statements contain either material errors or intentional immaterial errors
that achieve a particular presentation, then they do not comply with IFRS . Misstatements or omis–
sions are "material" if they could, either individually or cumulatively, influence the decisions of
users of financial statements.
11.2 Discovery of material errors relating to prior periods shall be corrected by restating com–
parative figures in the financial statements for the year in which the error is discovered, unless it is
"impracticable" to do so. Again, the strict definition of "impracticable" (as explained above) ap–
plies.
11.3
Disclosures in Respect of Correction of Prior-Period Errors
With respect to the correction of prior-period errors, lAS 8, paragraph 49 , requires disclosure of
• The nature of the prior-period error;
• For each period presented, to the extent practicable, the amount of the correction:
• For each financial statement line item affected; and
• For entities to which lAS 33 applies, for basic and diluted earnings per share.
• The amount of the correction at the beginning of the earliest prior period presented; and
• If retrospective restatement is "impracticable" for a particular prior period, the circumstances
that led to the existence of that condition and a description of how and from when the error
has been corrected.
Once disclosed, these disclosures are not to be repeated in financial statements of subsequent peri–
ods.
Case
Study 4
Facts
(a) The internal auditor of Vigilant Inc. noticed in
200Y
that in
200X
the entity had omitted to record in
its books of accounts an amortization expense amounting to
$30,000
relating to an intangible asset.
(b) An extract from the income statement for the years ended December
31, 200X
and
200Y,
before
correction of the error
follows:
Gross profit
General andadministrative expenses
Selling anddistribution expenses
Amortization
Net income before income taxes
Income taxes
Netprofit
200Y
$300,000
(90,000)
(30,000)
(30 000)
150,000
(30 000)
$120 000
200X
$345,000
(90,000)
(30,000)
XXXX
225,000
(45 000)
$180000
(c) The "retained earnings" of Vigilant Inc. for
200X
and
200Y
before correction of the error
are