Exercises - MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors

    QUESTION 1

      MFRS 108 Accounting Policies, Changes in Accounting Estimates and Errors prescribes the criteria for selecting and changing accounting policies, together with the accounting treatment ad disclosure of changes in accounting policies, changes in accounting estimates and correction of errors.

Required:

State any four (4) errors that may arise when preparing the financial statements.

QUESTION 2

       The retained earning account in the books of Zuligg Bhd showed an opening balance of RM 243,000 as at 1 July 2015. During accounting year ended 30 June 2016, situations below were identified:

1.   On 5 June 2016, it was identified that the acquisition of office equipment worth RM40,000 on 1 July 2014 was mistakenly treated as repair and maintenance. It is the company’s policy to depreciate office equipment at 10% on cost.

2.   Zuligg Bhd adopted the weighted average method to value its inventory. Starting from 1 July 2015 the company decided to change to First-in-First-out method. On 30 June 2016, it was found that the year-end closing stock valuation was still using the old method. This has caused the closing inventory to be understated by RM 150,000.

3.   Zuligg Bhd bought a machine on 1 July 2011 which has an estimated useful life of 10 years. On 1 July 2015, the company decided to revise the useful life to 8 years. The carrying value      of this machinery as at 1 July 2015 is RM 20,000. The company adopts straight line method to compute its annual depreciation.

Required:

a.   For each of the above situations, determine whether it is a change in accounting policy, a change of accounting estimates or an error.

b.   Ascertain whether the application of change as all the above situations should be adjusted retrospectively or prospectively.

c.   Prepare the appropriate journal entries to be taken into account for all the above situations   for the accounting year ended 30 June 2016.