Hamlet, a publicly listed company, is preparing its financial statements to 30 September 2003. In previous years

Question:

Hamlet, a publicly listed company, is preparing its to 30 September 2003. In previous years it has chosen to write off all of its development expenditure even where management have been confident that the related projects would be profitable. The company is aware that development expenditure meeting the definition of an intangible asset in IAS 38, should be capitalized. In the near future Hamlet intends to prepare its under International Financial Reporting Standards and as a step towards this, the management of Hamlet are to change their accounting policy for development expenditure for the current year to comply with IAS 38. Reproduced below are details of Hamlet's development expenditure for the relevant years. For the purpose of implementing the new policy management consider four years to be an appropriate amortization period for all development expenditure. Amortization should commence in the year following initial capitalization.

Hamlet, a publicly listed company, is preparing its financial statements

No development expenditure occurred in any year prior to 30 September 1999. The accumulated profit of Hamlet at 1 October 2001 was $2500 million. You may assume that the above development expenditure meets the definition of a recognizable intangible asset in IAS 38.
Required:
(a) Describe the circumstances in which companies are permitted to change their accounting policies under International Financial Reporting Standards and discuss what constitutes a change of accounting policy.
(b) Prepare extracts of Hamlet's income statement and balance sheet for the year to 30 September 2003 together with comparative figures to reflect the change in accounting policy in respect of development expenditure; and calculate the restated accumulated profits at 1 October 2001.
Hamlet uses the benchmark treatment in IAS 8, Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. Ignore deferred tax.

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