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Wiley IFRS: Practical Imp lementation Guide and Workbook
Retainedearnings, beginningof the year
Retainedearnings, ending of the year
200Y
$225 000
$375 000
200X
$45 000
$225000
(d) Vigilant lnc.'s income tax rate was 20% for both years.
Required
Present the accounting treatment prescribed by lAS 8 for the correction of the errors .
Solution
As an illustration of the accounting treatment and presentation of financial statements in accordance with
lAS 8, a condensed version of Vigilant Inc.' s Income Statement and Statement of Changes in Equity
follow s:
Vigilant lnc.
INCOME STATEMENT
For the Year Elided December 31, 200Y
Gross profit
General and administrative expenses and Selling and distribution expenses in–
cluding amortization
(see Explanation below)
Net income before income taxes
Incometaxes
Net profit
200Y
$300,000
(]50000)
150,000
(30000)
$llQJ)QQ
200X
restated
$345,000
(150000)
195,000
(39000)
$.I.5.6.QQQ
Yigilant Inc.
STATEMENT OF CHANGES IN EQUITY (RETAINED EARNINGS COLUMNS ONLY)
For the Year elided December
31,
200Y
Retained earnings, beginning, as reported previously
Correction of error, net of income taxes of
$6,000
(see
Explanation below)
Retained earnings, beginning, as restated
Net profit
Retained earnings, ending
200X
200Y
restated
$225,000
$ 45,000
(24 000)
---
201,000
45,000
120000
156000
$321000
$2Qlj)QQ
Vigilant Inc.
For the Year Ended December 31, 200Y
Notes to the financial statements (extract)
Note XX: The company omitted to record an amortizati on charge in the amount of $30,000 in 200X.
The financial statements for 200X have been restated to correct this error.
Explanation
According to the revised lAS 8, the amount of correction of an error that relates to prior periods should
be reported by adjusting the opening balance of retained earnings. Comparative information should be
restated unless it is "impracticable" to do so. The steps in preparing the revised financial statements and
related disclosures are
(I)
As presented in the Statement of Changes in Equity (retained earnings columns only), the
opening retained earnings was adjusted by $24,000, which represented the amount of error,
$30,000, net of income tax effect of $6,000.
(2) The comparative amounts in the Income Statement were restated as
General and administrative and Selling and Distribution
expenses, including depreciation, before correction
$120,000
Amount of correction
30 000
As restated
$illJ!l!l!
Income taxes before correction
$
45,000
Amountof correction
(60001
As restated
$~