There has to be a consistency in the following of the accounting policies. An entity would select and apply the accounting policy consistently and similar for all of the transactions, events and the conditions unless and until, the standard or the interpretation otherwise states.
An entity would only permit the change in the policy of accounting in case, the same is required bay any accounting standard or interpretation, or results in the financial statements provision some reliable and relevant information about the effects of the transactions, other such evets or the conditions on the financial position, performance of the entity or its cash flows. The changes in the policy of accounting includes the applying of the accounting policy in the kind of the transaction or the event that did not take place previously or were not material in nature. In case, any change in the accounting policy is required as per the new standard or the interpretation, then the change would be considered to be the change by the ne pronouncement or in case, the pronouncement fails to include the specific provision of the transition, then the change would be in the accounting policy which has been applied from retrospective effect. It is very much impractical to determine the period specific or the cumulative effect of the change for one or more periods that have been presented to the entity and the same shall apply to the new accounting policy to the carrying amounts of the assets and the liabilities which is at the beginning of the period for which the retrospective application is practicable and which could be the current period and which shall also make the corresponding adjustment to the opening balance of each one of the affected component of the equity in that period. Also, if it is not practical to determine the cumulative effect at the beginning of the period by the way of applying the new accounting policy to all of the prior periods, then the entity would adjust all of the comparative information to apply to the new policy of accounting from the earliest date which is practical (“IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors”, 2017).
Part a:
The accounting polices is the set of the some of the specific principles, bases, conventions, rules and the practices that are applied to the entity when they prepare and present the financial statements (“IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors”, 2017).
The process of restatement is the process which revises the financial statements that were issued earlier for the purposes of correcting the error.
Whereas, the retrospective application is the application of the different principles of accounting that were issued earlier and are reinstated in the financial statements as if they were been already issued. The retrospective application is something that is required when there are changes in the principles of accounting and when there are changes in the reporting entity (“frequentlty asked questions about restrospective application”, 2017).
Part b:
If the provisions of AASB 138 were applied, then for the year ended June 30, 2016, the company would capitalise the research as well as the development expenditure, which amounts to $64 million and then, depreciation shall be charged on the same. Capitalisation means that the amount shall be added to the cost of the asset for which the research or development has been undertaken. If the expenditure is capitalised, then that would result in increasing the net profit that has been earned by the company.
Part c:
Under the following situations, the change is allowed to be made:
In such a case, the company shall would account for change since the year in which the research was undertaken which the research was undertaken, that is, June 2016 and any profit or loss earned would be indicated in the statement of profit or loss.
Part d:
If it is not possible to determine the individual period-specific effects of the change in accounting policy on the prior periods presented, then the change in the accounting policy estimates etc should not be made.
Part e:
The changes made in the useful life and the residual value of the asset can be brought into the financial statements from any of the following methods:
Part a:
A provision is a liability of uncertain timing or amount (“Provisions, Contingent Liabilities and Contingent Assets”, 2017).
This amount is regarded as the provision since there is no certainty that the stated amount would be payable by the company. This may be or may not be payable by the company. Hence, a provision is created for the same. Also, the following conditions are satisfied, hence a provision would be created:
In measuring a provision consider future events as follows:
Part b:
The following are the methods that could be used:
Part c:
The risk has been taken into account due to the satisfaction of the following conditions:
The company has used the method of probability for recognising the amount of the provision. An alternative approach is the calculation of the present value of the amounts given in the question.
Part d:
The following is the calculation of the provision:
This approach is justified since the amount that could be payable by the company is not yet certain, that is, it could either be $420,000; $400,000; $300,000 or $200,000. Also, there is no probability whether the company would be liable to pay this amount or not, hence, the % of the probability would be multiplied by the amount of the cost in order to ascertain the amount of the provision that would be recognised in the books of accounts.
The following is the data:
01.07.2012 |
Purchase price |
7,00,000.00 |
Residual value |
1,00,000.00 |
|
Useful life |
10.00 |
|
30.06.2013 |
Fair value |
6,85,000.00 |
Depreciation |
||
30.06.2014 |
Fair value |
6,20,000.00 |
Depreciation |
||
30.06.2015 |
Fair value |
5,20,000.00 |
Depreciation |
The following are the journal entries that would be passed:
Date of transaction |
Particulars |
Debit |
Credit |
|
Value of machinery after depreciation |
|||
01.07.2012 |
Machinery |
7,00,000.00 |
||||||
Cash |
7,00,000.00 |
|||||||
30.06.2013 |
Depreciation |
60,000.00 |
||||||
Accumulated depreciation |
60,000.00 |
|||||||
30.06.2013 |
Machinery |
45,000.00 |
6,40,000.00 |
|||||
Revaluation profit |
45,000.00 |
|||||||
30.06.2014 |
Depreciation |
65,000.00 |
6,20,000.00 |
|||||
Accumulated depreciation |
65,000.00 |
|||||||
30.06.2014 |
Machinery |
– |
||||||
Revaluation profit |
– |
|||||||
30.06.2015 |
Depreciation |
65,000.00 |
||||||
Accumulated depreciation |
65,000.00 |
5,55,000.00 |
||||||
30.06.2015 |
Revaluation loss |
35,000.00 |
||||||
Machinery |
35,000.00 |
|||||||
31.12.2015 |
Cash |
5,00,000.00 |
56,000.00 |
Amount of depreciation |
||||
Machinery |
4,64,000.00 |
|||||||
Profit on sale |
36,000.00 |
References:
Accounting Policies, Changes in Accounting Estimates and Errors. (2017). www.aasb.gov.au. Retrieved 8 May 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB108_07-04_COMPmay11_07-11.pdf
Fazal, H. (2017). How to account for change in residual value of fixed asset? – PakAccountants.com. PakAccountants.com. Retrieved 8 May 2017, from https://pakaccountants.com/how-to-account-for-change-in-residual-value-of-fixed-asset/
frequentlty asked questions about restrospective application. (2017). media2.mofo.com. Retrieved 8 May 2017, from https://media2.mofo.com/documents/frequently-asked-questions-about-retrospectively-revised-financial-statements.pdf
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors. (2017). Iasplus.com. Retrieved 8 May 2017, from https://www.iasplus.com/en/standards/ias/ias8
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors. (2017). Iasplus.com. Retrieved 8 May 2017, from https://www.iasplus.com/en/standards/ias/ias8
IAS 37 — Provisions, Contingent Liabilities and Contingent Assets. (2017). Iasplus.com. Retrieved 8 May 2017, from https://www.iasplus.com/en-gb/standards/ias/ias37
Provisions, Contingent Liabilities and Contingent Assets. (2017). www.aasb.gov.au. Retrieved 8 May 2017, from https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order formOnce we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignmentAs soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download