PAS 8.xlsx - Accounting Policy > are specific principles bases conventions rules and practices applied by an entity in preparing and presenting

PAS 8.xlsx - Accounting Policy > are specific principles...

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Accounting Policy >> are specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenti >> These are the standards set by the company. This includes IAS and IFRS. >> These are considered as the NORM in accounting by an entity. >> Should be used consistently. >> This is changed when it is required by an accounting standard or an interpretation of standard. ** Any changes in the standard will require you to apply the said change. >> This could also be based on judgement if the change will result in presentation of a more relevant and faithf >> This includes changes in inventory methods (FIFO, Average), change in revenue recognition, change in repor >> Accounting Treatment: ** Transitional Provision; if required by the standards. ** Retrospective (Voluntary); this will be applied if there is no transitional provision. This inclu ** Prospective; this is used if the retrospective application is not applicable. The reason why retrospective is not applicable is if the retrospective approach Adjustments must be made from the earliest period practicable. PAS 8 par 35: >> A change in the measurement basis applied is a change in accounting policy and is not a change in accountin When it is indistinguishable, it shall be treated as an accounting estimate. Selection of Accounting Policy 1. With IFRS >> Thte accounting policies shall be based on the applicable IFRS. 2. In the absence of IFRS >> The entity shall use "judgement" in developing and applying an accounting policy. ** In making judgements: Par 11: in Descending Order: a. the requirements in IFRS dealing with similar and related issued. b. the definitions, recognition, criteria and measurement concepts for assets, liabilities, incom Par 12: >> Most recent pronouncement of other standard-setting bodies as long as these do not conflict with sources in paragraph 11. Consistency of Accounting Policies: >> An entity shall select and apply its accouning policies consistently for similar transactions, other events, and conditions, unless an IFRS specifically requires or permits categorization of items for which >> If an IFRS requires opr permits such categorization, an appropriate accounting policy shall be selected in eac Illustrative Problem 1 Change in Accounting Policy in Inventory: 2020 2019 Sales 2,000,000.00 2,200,000.00 Cost of Sales (800,000.00) (880,000.00) Gross Profit 1,200,000.00 1,320,000.00
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Operating Expenses (960,000.00) (1,056,000.00) Net Income 240,000.00 264,000.00 RE, Beg. 514,000.00 250,000.00 RE, Ending 754,000.00 514,000.00 2020 2019 2018 FIFO 80,000.00 88,500.00 96,000.00 Weighted 95,000.00 90,000.00 93,000.00 FIFO 2020 2019 Beginning 88,500.00 96,000.00 Purchases 791,500.00 872,500.00 COGAS 880,000.00 968,500.00 Less: Ending 80,000.00 88,500.00 COGS 800,000.00 880,000.00 Average Beginning 90,000.00 93,000.00 Purchases 791,500.00 872,500.00 COGAS 881,500.00 965,500.00 Less: Ending 95,000.00 90,000.00 COGS 786,500.00 875,500.00 Income Statement (Revised) 2020 2019 Sales 2,000,000.00 2,200,000.00 Less: COGS 786,500.00 875,500.00 Gross Profit 1,213,500.00 1,324,500.00 Less: Operating Exp. 960,000.00 960,000.00 Operating Income 253,500.00 364,500.00 ** There are industries that require more years as the earliest prior periods. ** There are problems that would give you are unadjusted amounts. They will then require you to adjust the "OR" 2020 2019 2018 FIFO 80,000.00 88,500.00 96,000.00 Weighted 95,000.00 90,000.00 93,000.00 Under (Over) 15,000.00 1,500.00 (3,000.00)
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>> If the asset is overstated, the income is also overstated. Likewise in understatement.
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