$6.$ Change in accounting policy

During the current financial year, the directors of Kunutu decided to change the measurement basis for

inventory from the first in first out $($FIFO$)$ method to the weighted average cost method. This change in

accounting policy was made to better reflect the movement and valuation of inventory items. The

directors believed this would provide more reliable and relevant information about inventory.

The value of inventory on $31$ January $2024,$ based on the two methods of valuation was as follows:

$2024$

R

$2023$

R

$2022$

R

Weighted average cost method $790000625000580000$

First$-$in$-$first$-$out method $745000600000570000$

The South African Revenue Service $($SARS$)$ will not re$-$open the previous years$$ assessments but will

accept the new policy in respect of the taxation of current and future years.

This change in accounting policy has not been accounted for as yet, however the financial accountant

has drafted a change in accounting policy note to be disclosed in the financial statements for the year

ended $31$ January $2024.$ Refer to the email from the financial accountant below:

To: FinancialManager@Kunutu.co$.$za

From: FinAcc$1$@Kunutu.co$.$za

Subject: Draft Change in accounting policy note and calculations

Date: $3$ February $2024$

Attachment: Change in accounting policy note

Dear Financial Manager

I hope this email finds you well.

Please find attached for review the draft change in accounting policy note that we will have to disclose

in the financial statements for the year ended $31$ January $2024.$

P$.$S$.$ This is the first time I$\text{'}$m drafting the note in practice, the last time I worked on a change in accounting

policy note, I was still a student. Should there be any areas where you need clarity, please feel free to

contact me$.$

Kind regards

Financial accountant

FAC$3764$ Assessment $4$

Page $6$ of $8$

QUESTION $($continued$)$

Attachment $1$:

Kunutu Ltd

Notes to the financial statements for the year ended $31$ January $2024$

Change in accounting policy

The company changed its accounting policy during the year in respect of the valuation of inventory from

the first$-$in$-$first$-$out method to the weighted average method. The change in accounting policy was

accounted for retrospectively and comparative amounts were restated. The effect of the change in

accounting policy is as follows:

$202420232022$

R R R

Cost of sales $450002500010000$

Current tax expense $(12150)(6750)(2700)$

Profit for the year $32850182507300$

Inventory $450002500010000$

Deferred tax liability $(12150)(6750)(2700)$

Equity $32850182507300$

Calculations $202420232022$

R R R

Weighted average $($new$)790000625000580000$

First$-$in$-$first$-$out $($old$)(745000)(600000)(570000)$

$450002500010000$

Tax at $27\%(12150)(6750)(2700)$

$32850182507300.$Write an email to the financial accountant of Kunutu Ltd where you critically

evaluate in terms of International Financial Reporting Standards, the draft change

in accounting policy note.

$$ Your evaluation must include the relevant amounts and calculations.

Communication skills: presentation

Communication skills: logical argument