1)Which one of these changes would be classified as a 'change in accounting policy' asdetermined by IAS 8?

a)Increased the allowance for doubtful debts from 6% to 8% of outstanding debts

b)Changed the method of valuing inventory from weighted average cost to first in first out

c)Changed the depreciation of plant and equipment from reducing balance to straight line depreciation on cost

d)Changed the useful economic life of its plant and equipment from six years to eight years

2)In which two of the following situations can a change in accounting policy be made by an entity?

a)If a new accounting policy would show more favourable results

b)If a new accounting policy results in a more reliable and relevant presentation of events or transactions

c)If the change is required by an IFRS

d)If the company thinks a new accounting policy would be easier to report

3)Which two circumstances are outlined in IAS 8 as acceptable reasons to change accounting policy?

a) To show the best possible results for shareholders

b) If a change results in more reliable and relevant information to users

c) If tax law in a country changes

d) If required by an IFRS

4)A change in accounting policy doesNOTinclude which of the following?

a) Change in useful life from 10 years to 7 years.

b) Change in method of valuation from FIFO to weighted-average.

c) Change in method of valuation from weighted-average to FIFO. IAS 8-Changes in Accounting Policy

d)Change from practice (convention) of one month's salary as Christmas bonus tostaff before the end of the year to the new practice of paying one -half (12)month's salary only.

5)Which of the following is a change in accounting policy as opposed to a change in accounting estimate?

a)Classifying commission earned as revenue in the SOPL having previously classified it as other operating income

b)Revising the remaining useful life of a depreciable asset

6)When it is difficult for an entity to distinguish between a change of estimate and a change in accounting policy, the entity should;

a)Treat the entire change as a change in estimate with the appropriate disclosure.

b)Apportion on a reasonable basis, the relative amounts of change in estimate and the change in accounting policy and treat each one accordingly.

c)Treat the entire change as a change in accounting policy.

d)Since the change is a mixer of two types of changes, it is best to ignore in the year of the change; the entity should then wait for the following year to see how the change develops and then treat it accordingly.

7)Which of the following is a change in accounting policy as opposed to a change in estimation technique?

a)An entity has previously shown depreciation within cost of sales. It now shows those overheads within administrative expenses.

b)An entity has previously measured inventory using the first in first out method and it now intends to measure inventory using the weighted average cost method. IAS 8-Changes in Accounting Policy

c) An entity has previously depreciated vehicles using the straight line method and now intends to switch to the reducing balance method.

8)XYZ Limited changes its method of valuation of inventories from weighted-average method to first-in-first-out method. How should XYZ account for this change?

a) A change in estimate and account for it prospectively.

b) A change in accounting policy and account for it prospectively.

c) A change in accounting policy and account for it retrospectively

d) Account for it as a correction of error and account for it retrospectively.

9)When a public shareholding company changes an accounting policy voluntarily, how should this be accounted for?

a)Inform shareholders prior to taking the decision.

b)account for it retrospectively

c)Treat the effects of the change as an extraordinary item.

d)Treat it prospectively and adjust the effect of the change in the current period and future periods.

10)When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, how should this be addressed?

a)Retrospectively change the depreciation charge based on the revised salvage value.

b)Change the depreciation charge and treat it as a correction of error.

c)Change the annual depreciation charge for the current and future years.

d)Ignore the effects of the change on annual depreciation, because change in salvage value would normally affect the future only since these are expected to be recovered in future.

11)A piece of property, plant and equipment cost $24,000 and it is to be written off over eight years and it can be written off using different depreciation methods such as straight line, reducing balance, sum of the digits, etc. Which of the above relates to the accounting policy and which relates to a change in accounting estimates?

12)During 2019, a company discovered that certain items had been included in inventory at 31 December 2018 at a value of $1 million but they had in fact been sold before the year- end. The original figures reported for the year ended 31 December 2018 and the figures for the current year 2019 are given below:

2019

$'000

Sales 50,000

Cost of Sales 32,000

Gross Profit 18,000

Tax 3,000

Net Profit 15,000

2018

$'000

47,000

31,000

16,000

2,000

14,000

The cost of sales in 2019 includes the $1 million error in opening inventory. Required: Show the 2019 SOPL with comparatives figures.

13)All Change Incorporated changed its accounting policy in 2019 with respect to the valuation of inventories. Up to 2018 inventories were valued using the WAC method. In 2019, the method was changed to FIFO, as it was considered to more accurately reflect the usage and flow of inventories in the economic cycle. The impact on inventory valuation was determined to be as follows:

The income statements prior to adjustments are as follows:

At December 31, 2017 an increase of $10,000

At December 31, 2018 an increase of $15,000

At December 31, 2019 an increase of $20,000

2019. 2018

Revenue. $250,000. $200,000

Cost of sales $100,000. $80,000

Gross profit. $150,000. $120,000

Administrative costs. $60,000. $50,000

Selling & distribution. $25,000 $15,000

Net profit $65,000 $55,000

Required:

Present the change in accounting policy in accordance with requirements of IAS 8 in the:

a) Income Statement

b) Statement of Changes in Equity

14)On January 1, 2010, Robust Limited purchased heavy duty equipment for $400,000. On the date of installation, it was estimated that the machine has a useful life of 10 years and a residual value of $40,000. Accordingly the annual depreciation worked out to be$36,000[($400,000-$40,000) / 10].

On January 1, 2014, after four years of using the equipment, the company decided to review the useful life of the equipment and its residual value. Technical experts were consulted. According to them, the remaining useful life of the equipment on January 1, 2014, was seven (7) years and its residual value was $46,000.

Required:Compute the revised annual depreciation for the year and for future years.