LKAS 8 Accounting Policies Changes in Accounting Estimates and Errors

Group Members Harsha Buddhika Oshini Andrado Dilumika Madushani Ranjith Bandara Kanchana Weerasingha

Scope Accounting Policies Accounting Estimates Changes in Accounting Policies With effect from 1st January 2014

What is Accounting Policies? Accounting policies are Specific principles Bases Conventions Rules and practices applied by an entity in preparing and presenting financial statements.

Selecting Accounting Policies

Selecting Accounting Policies The requirements and guidance in standards dealing with similar and related issues The definition recognition criteria and measurement concepts for assets, liabilities, income and expenses in the framework

Consistency of Accounting Policies

Changes in Accounting Policies It is required by a SLFRS Results in the financial statements providing reliable and more relevant information about the effect of transactions, other events or conditions on the entity’s financial position, financial performance or cash flows.

Retrospective Application It’s applying a new accounting policy to transactions other events and conditions as if that policy had always been applied.

Disclosure When initial application of a SLFRS has effect on the current period or prior period The title of the SLFRS When applicable, that the change in accounting policy is made in accordance with it’s transitional provisions Contd….

Disclosure The nature of the change in accounting policy When applicable, the transitional provisions that might have an effect on future periods Contd….

Disclosure For the current period and each prior period presented, to the extent practicable, the amount of the adjustment: for each financial statement line item affected; if LKAS 33 Earning per share applies to the entity, for basic and diluted earnings per share

Changes in Accounting Estimate A change in accounting estimate is, an adjustment of the carrying amount of an asset or a liability or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.

Examples Bad debts Inventory obsolescence The fair value of financial assets or financial liabilities The useful lives of , or expected pattern of consumption of the future economic benefits embodied in , depreciable assets Warranty obligations

Changes in Accounting Estimates The period of the change, If the change affects that period only The period of the change and future periods, if the change affects both.

Prospective Applications It is recognizing the effect of the change in accounting estimate in the current and future period effected by the change.

Disclosure The nature and amount of a change in an accounting estimate that has an effect in the current period or Is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. Contd….

Disclosure If the amount of the effect in future period is not disclosed because it is impracticable to estimate that effect.

What is an Error? Error can arise in respect of the recognition, measurement, presentation or disclosure of elements of financial statements.

Disclosure The nature of the prior period error For each prior period presented, to the extent practicable, the amount of the correction: - for each financial statement line item affected - If LKAS 33 applies to the entity, for basic and diluted earning per share

Disclosure The amount of the correction at the beginning of the earliest prior period presented.

Question ABC PLC bought an item of equipment at cost of Rs.100,000 on 1st January 2012. The original estimated useful life is 10 years with zero residual value. Straight line method of depreciation has been used. After three year on 31st December 2014 the carrying amount was Rs.70,000. on 1st January 2015 it is decided that as a result of market condition the remaining useful life is only 3 years ( So a total of six years) Calculate Depreciation amount for 2015

Answer Therefore depreciation charge for three years commencing from 1st January 2015 would be Rs.23,333 ( Rs. 70,000/3) No restatement of previous years financial statement is required. The effect of the change in the current year and the next two years must be disclosed.

Thank you