(VALIX) SCE - Accounting Changes
(VALIX) SCE - Accounting Changes
(VALIX) SCE - Accounting Changes
Equity is defined
as the residual interest in the assets ofan
of the liabilities.
entity after deducting all
words,equity is the equivalent of
net assets,
In other meaning
total assets minus total liabilities.
Although equity is defined as a residual, it
may be
subclassified in the statement of financial position.
In a corporate entity,
be shown separately:
the following subclassifications may
Share capital - funds contributed by shareholders
a. equal
to the par or stated value
b. Share premium funds contributed by shareholders in
excess of par or stated value
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- all amounts are assumed
EXAMPLAR COMPANY
Statement of Changes in Equity
Year ended December 31, 2019
Share Retained
capital Reserves earnings
Change in
accounting policy from
to FIFO-credit 300,000
weighted average
Issuance of 10,000 ordinary shares
with P100 par at P150 per
share 1,000,000 500,000
income:
Comprehensive
Net income 1,550,000
Conversely, if the
is reverted or added
appropriation is subsequently canceled, it
back to the
unappropriated balance.
a. Legal
requirement, as in the case of treasury shares
b.
Contractual requirement, as in the case of bond redemption
C.
Entity policy, as in the case of an
contingencies appropriation
for
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all amounts are assumed
Illustration
EXAMPLAR COMPANY
Statement of Retained Earnings
Year ended December 31, 2019
147
caAPTen 1o
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CATEGORIES OF ACCOUNTING CHANGE
194
tramples of accounting estimate
Doubtful accounts
b. Inventory obsolescence
Useful life,
residual value, and expected pattern of
consumption of benefit of depreciable asset
d. Warranty cost
e. Fair value of financial assets and financial liabilities
195
CHAPTER 11
ACCOUNTING CHANGES
Change in accounting policy
Prior period errors
TECHNICAL KNOWLEDGE
205
POLICIES
ACCOUNTING P
the specific
principles, bases.
Accounting policies are
rules and practices applied by an entity in
conventions, statements.
preparing and presenting financial
The entity shall select and apply the same accounting policies
each period in order to achieve comparability of financial
statements or to identify trends in the financial position,
206
Examples
of
change in accounting policy
in accounting policy arises when.
A change an
entity adopts a
accepted accounting principle which is
generally different from
the one previously used by the entity.
Examples
of change in accounting policy are:
e.
Change to a new policy resulting from the requirement
of a new PFRS.
a.
The application of an accounting policy for events or
transactions that differ in substance from previously
occurring events or transactions.
immaterial.
If the standard
or interpretation contains no transitional
provisions or if an accounting policy is changed voluntarily,
the
change shall be applied restropectively
or
retroactively.
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Retrospective application
if policy
as
to thatpolicy
had always been applied.
PAS 8, paragraph 22, provides that an entity shall adjust
opening balance of each affected component ofequity the
comparative amounts
for the
earliest prior period presented and the
disclosed for each prior period presented as if the
new policy
had always been applied.
Simply stated, retrospective application means that
any
resulting adjustment from the change in accounting policy
shall be reported as an adjustment to the opening
balance of
retained earnings.
Illustration
208
raiustment of the decrease in beginning inventory
n mined earnings
Retained
250,000
The
computation of the cost of goods sold for 2019 would
then
show beginning inventory at P750,000 and ending
inventoryat P1,200,000 to conform with the weighted average
method.
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Prospective application
Prospective application means that the new accounting Policy
isapplied to events and transactions occurring after the dot.
at which the policy is changed.
periods
In other words, the financial statements of all prior
information
presented shall be restated to show financial
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accounting standard
b.
Could reasonably be expected to have been obtained and
taken into account in the preparation and presentation
of those financial statements.
Errors
may occur as a result of mathematical mistakes,
mistakes in misinterpretation
applying accounting policies,
•of
facts, fraud or oversight.
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of prior period errors
b.
The
amount of correction for each prior period presented,
extent practicable:
to the
Illustration
Sales 5.000,000
Cost of 2,700,000
goods sold (3,000,000 - 300,000)
Gross income 2,300,000
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CHAPTER 12
QUESTION 12-1
What is a statement of changes in equity?
ANSWER 12-1
QUESTION 12-2
What are the components of the statement of changes in equity?
ANSWER 12-2
196
QUESTION 12-3
What is a statement of retained earnings?
12-3
ANSWER
QUESTION 12-4
ANSWER 12-4
This capital
and
approach has two variations, namely financial
Physical capital.
197
12-5
QUESTION
ANSWER 12-5
QUESTION 12-6
ANSWER 12-6
198
12-7 Multiple choice
a.Investments by owners
b. Distributions to owners
c. Change in ownership interest in subsidiary that does
not result in a loss of control
All of these should be presented in the statement of
changes in equity
ANSWER 12-7
1.
2.
3, d
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choice (IAA)
QUESTION 12-8 Multiple
in a statement of
1. Which of the following does not appear
retained earnings?
a. Net loss
b. Prior period error
Preference share dividend
Other comprehensive income
would appear first in a statement
2. Which of the following
of retained earnings?
a. Net income
of retained earnings?
Net loss
Priorperiod adjustment
Discontinued operation
d. Dividend declared
Retained earnings
Other comprehensive income
C. Net income
d. Share premium
ANSWER 12-8
d
b
c
200
HESTION 12-9 Multiple choice
QUESTION
financial capital concept requires
1. The that
be measured at net assets shall
Current cost
Historical cost
Historical cost adjusted for
C.
power
changes in purchasing
d. Current cost adjusted for changes
power
in purchasing
The physical
2.
capital concept requires the adoption of
which measurement basis?
8. Historical cost
Current cost
c. Realizable value
d. Present value
a. Profit is
any amount over and above that required to
maintain the capital at the beginning of the period
b. Profit is the residual amount that remains after
expenses have been deducted from income
Profit.is the equivalent of net income under IFRS
All of these statements are true about the term profit
ANSWER
12-9
b
b
a
d
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QUESTION 15-2
How should the effect of a change in accounting estimate be
accounted for?
ANSWER 15-2
A change in
accounting estimate shall not be accounted for
an
QUESTION 15-3
218
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5. The effect of a change in accounting policy that is inseparable
from the effect of a change in accounting estimate should
be reported
the financial statements of all prior periods
a. By restating
presented.
As a correction of an
error.
d
b
220
QUESTION 15-5 Multiple choice
(LAA)
1. Accounting changes are often made even
be a violation of the accounting thoughthis may
concept of
Materiality
D Prudence
Consistency
c.
d. Objectivity
in accounting estimate?
ANSWER 15-5
b
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CHAPTER 16
ACCOUNTING POLICY
Prior period error
QUESTION 16-1
ANSWER 16-1
QUESTION 16-2
What is a change in accounting policy?
ANSWER 16-2
222
Not changes
in accounting policy
of
b. The application a
new accounting policy for events or
transactions which did not occur previously or that were
immaterial.
16-3
QUESTION
When is a change in accounting policy allowed?
ANSWER 16-3
QUESTION 16-4
ANSWER 16-4
If the standard
or interpretation contains no transitional
provisions
the
an accounting policy is changed voluntarily,
or if
change shall be applied restropectively or
retroactively
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16-5
QUESTION
of a change in accounting
Explain retrospective application
policy.
ANSWER 16-5
accounting policy
Retrospective application is applying a new
to tronsactions, other events and conditions as if that
policy
had always been applied.
PAS 8, paragraph
22, provides that an entity shall adjust the
of equity for the
opening balance of each affected component
the other comparative
earliest prior period presented and
amounts disclosed for each prior period presented as if the
earnings.
The amount of the adjustment is determined as of the
beginning of the year of change
If comparative information is presented, the financial
statements of the prior period presented shall be restated
to conform with the new accounting policy.
QUESTION 16-6
ANSWER 16-6
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ESTION 16-7
What
is a change in reporting entity?
ANSWER 16-7
ANSWE
QUESTION 16-8
ANSWER 16-8
225
QUESTION 16-9
application of an
accounting policy
Explain the selection and
absence of an accounting standard.
where there iS an
ANSWER 16-9
provides that in the absence of an
PAS 8, paragraph 10,
standard that specifically applies to
a transaction
accounting use judgment in selecting and
event, management shall results in relevant and
applying an accounting policy that
reliable information.
QUESTION 16-10
What is the meaning of prior period errors?
ANSWER 16-10
misstatements
Prior period errors are omissions from and
in the financial statements for one or more periods arising from
a failure to use or misuse of reliable information that:
226
16-12 Multiple choice (IFRS)
QUESTION
1. Which is
the first step within the hierarchy of guidance
when selecting accounting policies?
from IFRS if it specifically relates
Apply a standard
to the transaction.
b. Apply the requirements in IFRS dealing with similar
and related issue.
C. Consider the applicability of the definitions,
recognition criteria and measurement concepts in the
Framework.
Conceptual
a. Consider the most recent pronouncements of other
standard setting bodies.
I. Required by law.
I and II only
228
16-13 Multiple choice
QUESTION
An entity that changed an accounting policy
1. voluntarily
should
a.
Inform shareholders prior to taking the decision.
Account for the change retrospectively.
Treat the effect of the change as a component of other
comprehensive income.
d. Treat the change prospectively and adjust the effect
of
the change in the current period and
future periods
a. current
Recognizing a change in accounting policy in the
and future periods affected by the change.
b. Correcting the financial statements as if a prior period
error had never occurred.
Applying a new accounting policy to transactions
occurring after the date at which the policy is
changed.
d. Applying a new accounting policy to transactions as
if that policy had always been applied.
3. Which term best
describes applying a new accounting
policy to transactions as if that policy had always been
applied?
Retrospective application
Retrospective restatement
C. Prospective application
d. Prospective restatement
4. This means
and
correcting the recognition, measurement
disclosure of amounts of elements of financial
statements as if a prior period error had never occurred.
a.
Retrospective application
® Retrospective restatement
d. Prospective application
Prospective restatement
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treated change in
the following should be
as a
5. All of
accounting policy, except
ANSWER 16-18
a
b
6. a
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SVER 151
QUESTION 16-15 Multiple choice (AICPA Adapted)
a.
From FIFO method of inventory valuation to the average
method.
b. In the service life of property, plant and
equipment.
© From cash basis to accrual basis of accounting.
d. In the tax
assessment related to a prior period.
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An entity that changed from an
5.
accounting principle that
is not generally accepted to one that is
should report the effect of the change, generally accepted
income tax, in the current net of applicable
Income statement
a.
as component of
continuing operations income from
b. Income statement
as component of discontinued
operations
Statement of retained earnings aS
the
an
adjustment of
opening balance
d. Statement of retained
earnings after net income but
before dividends
ANSWER 16-15
1. a
2. d
3. c
4. a
5. c
235
Multiple choice (IFRS)
QUESTION 16-16 an entity discovered that ending
year,
the current in the financial statements for the
1. During
inventory reported
should the
understated. How
was understatement?
entity
prior year
for this
account in prior year.
the
inventory
beginning statements with corrected
Adjust thethe financial
6Restate for all periodspresented.
balances balance in retained earnings at
ending
c. Adjust the
current year-end.
because the error
will self-correct
d. Make no entry
2018, the entity discovered that
2. On March 25, was overstated. The 2017
for 2017
depreciation expense were authorized for issue on April
financialstatements
1, 2018. What must the entity do?
Correct the
2017 financial statements before issuing
them.
b. Reduce depreciation for 2018. for 2017
Restate the depreciation expense reportedfinancial
in the comparative figures of the 2018
C.
statements.
d. Do nothing.
discovered that
3. On March 25, 2018, the entity
overstated. The 2011
depreciation expense for 2017 was
mnancial staterents were authorized for issue on March
1, 2018. What must the entity do?
with the
a. Reissue the 2017 financial statements
correct depreciation expense.
Reduce depreciation for 2018.
b. for 2017
Restate the depreciation expense reported
in the comparative figures of the 2018
financial
statements.
d. Do nothing.
ANSWER 16-16
1. b
8. c
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QUESTION 16-17 Multiple choice
Adapted)
1. A change in reporting entity is actually a change in
IG Accounting
Accounting policy
estimate
c. Accounting method
d. Accounting concept
3.
Which statement is correct regarding accounting changes
that result in financial statements that are in effect the
statements of a
different reporting entity?
237
What is the proper accounting treatment for a change in
4.
reporting entity?
statements of all prior
Restatement of financial periods
presented financial
b. Restatement of current period statements
C.
Note disclosure and supplementary echedule
of retained earnings and
note
disclosure
d. Adjustment
ANSWER 16-17
1. a
b
d
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