Case study 2 and case study 3 ias 8 new case studies with ans
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Transcript of Case study 2 and case study 3 ias 8 new case studies with ans
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CASE STUDY 2
Is it an error or Change in Accounting Estimate?
In the case of an entity when measuring employee stock option an estimate
of employee turnover is calculated based on the available information on the
grant date. The accountant of entity H LTD excluded certain vital
information derived by HR department so that historical employee turnover
of 35% will be drastically reduced to just little over 5% in future because of
effective HR management.
Hence, there was under estimation of employee benefits arising out of
employee stock option in the year of grant. There was a 4 years of vesting
period. In the year 3, there arises a need for revision of accounting estimate
as there was lower employee turnover. Should this be classified as change in
accounting estimate and accounted for in accordance with Para 36 and 37 of
IAS 8?
CASE STUDY 3
Is it a change in accounting policy or Change in Accounting Estimate?
A company had changed the useful life of a plant from 20 years to 10 years
resulting in change in amount depreciation during the current year and future
years. The chief accountant of the company wants to know whether opening
carrying amount of the relevant plant and accumulated depreciation be
recomputed giving retrospective application as per IAS 8. Give your views.
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SOLUTION CASE STUDY 2:
Prior period errors are omissions from, and misstatements in, the entity’s
financial statements for one or more prior periods arising from a failure to
use, or misuse of , reliable information that :
(i) was available when financial statements for those periods were
authorized for issue and
ii. Could reasonably be expected to have been obtained and taken into
account in the preparation and presentation of those financial statements.
Such errors include the effects of mathematical mistakes, mistakes in
applying accounting policies, oversights or misinterpretations of facts, or
fraud.
In fact this case falls under error not change in accounting estimates. There
was oversight of facts.
SOLUTION CASE STUDY 3:
Change in useful life is a change in accounting estimate not a change in
accounting policy requiring retrospective application.
Change in accounting estimate is given prospective application by changing
the current year depreciation and also depreciation charge of future years.
The entity has to compute the effect of depreciation on the future profit or
loss carrying amount of the asset and accumulated depreciation.
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