7. Reporting Financial Performance

Question 1

How do you account for a change in accounting policy?

Answer 1

Retrospective application

Question 2

Accounting for change in accounting policy: Retrospective application

Answer 2

As if always in place:

1.Prior period adjustment to retained earnings

2.Restate comparatives (unless impractical)

Question 3

Changing accounting policy: When must disclosure be made?

Answer 3

Material effect on current/prior period presented

May have effect on subsequent periods

Question 4

Changing accounting policies: Disclosures

Answer 4

1. Reasons
2. Adjustment amounts
   (Current and prior)

Question 5

How to account for changes in accounting estimates?

Answer 5

Prospective application

Question 6

Accounting for changes in accounting estimates: Prospective application

Answer 6

Recognize in current and future periods

Question 7

How are prior-period errors corrected?

Answer 7

Retrospective correction

Question 8

Prior-period error disclosures?

Answer 8

1. Nature of error
2. Amount of correction(s)
3. Amount of correction at beginning of earliest prior period presented

Question 9

Assets held for sale and discontinued operations: Treatment

Answer 9

Single amount
Disclosed separately from continuing operations

Comprising:
1. Total post tax profit
2. Post tax gain on re-measurement to FVLCTS or on disposal

Question 10

Related party disclosures: Regardless of?

Answer 10

Regardless of whether a price is charged (OBT)

Question 11

Events after reporting period: Adjusting

e.g. Settlement of court case that confirms year-end obligation
Indication of impairment
Customer irrecoverable debt bankruptcy
Inventory sale lower than cost
Assets purchased/sold
Fraud/errors

Answer 11

Provide additional evidence of conditions existing at reporting date

Adjust FS to reflect event

Question 12

Events after reporting period: Non-adjusting: Doesn’t impact going concern: Not important to users’ understanding
(I.e. not material)

e.g. Discontinuing operations
Major asset purchase
Asset destruction (fire/flood)
Significant commitments/contingent liabilities
Court case after reporting date

Answer 12

Don’t adjust FS

Question 13

Events after reporting period: Non-adjusting: Doesn’t impact going concern: Important to users’ understanding

Answer 13

Disclose in note:

1. Nature of event
2. Estimate of financial effect

Question 14

Events after reporting period: Non-adjusting: Impacts going concern

Answer 14

Adjust FS
To break up basis

Question 15

Treatment of dividends declared after reporting date

Answer 15

Not adjusted

But noted (if known before FS prepared)

Question 16

FRS difference: Held-for-sale assets

Answer 16

Not recognized

So only discontinued operation actually disposed of

Question 17

FRS difference: discontinured operatoin

Answer 17

separate column:

Turnover
Tax
impairment/disposal gain/loss