Topic03 Preparation of Finanical Statements II

Topic03 Preparation of Finanical Statements II -...

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Topic 3 Preparation of  Financial Statements II AF3110 Intermediate  Accounting 1 2009/10 Semester 2
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2 Accounting Standards for Discussion HKAS 8 HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors HKAS 10 HKAS 10 Events after the reporting period HKFRS HKFRS 5 5 Non-current Assets Held for Sale and Discontinued Operations
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3 HKAS8 Major themes: Changes in accounting estimates Changes in accounting policies Prior period errors
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4 Changes in Accounting Estimates Items requiring estimates: Useful life of non-current assets Inventory obsolescence Impairment of accounts receivable Revision in estimates is needed because of changed circumstances Treatment: No retrospective revision, i.e. adjust in the current / future period Separate disclosure if effect is material
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5 Changes in Accounting Estimates - Example 1 Jan. 2005 Equipment cost: $400,000 Estimated useful life: 10 years Estimated residual value: $40,000 Annual depreciation ($400,000 - $40,000) / 10 = $36,000 1 Jan. 2009 Remaining useful life: 7 years Revised residual value: $46,000 Carrying amount at 1 Jan. 2009 $400,000 ($36,000 x 4) = $256,000 Revised annual depreciation for 2009 and future years: ($256,000 - $46,000) / 7 = $30,000
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6 Changes in Accounting Estimates – Example 2 1 Jan. 2007 Equipment cost: $600,000 Estimated useful life: 15 years Estimated residual value: $40,000 First year depreciation: Double-declining $600,000*2* (1/15) = $80,000 1 Jan. 2008 2008 Depreciation: ($600,000 - $80,000)*2*(1/15) = $69,333 1 Jan. 2009 2009 Depreciation: ($600,000 - $80,000 - $69,333)*2*(1/15) = $60,089
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7 Changes in Accounting Estimates – Example 2 In 2010 Change from double-declining to straight-line method Annual depreciation for 2010 onwards NBV at time of change: $600,000 - $80,000 - $69,333 - $60,089 = $390,578 Remaining life: 12 years Revised annual depreciation: ($390,578 - $40,000)/12 = $29,148
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8 Changes in Accounting Policies Allowed circumstances Allowed circumstances Statute, accounting standard or interpretation
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This note was uploaded on 10/20/2010 for the course AD abc123 taught by Professor Cat during the Summer '09 term at City University of Hong Kong.

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Topic03 Preparation of Finanical Statements II -...

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