(a) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors contains guidance on the use of accounting policies and accounting estimates. Required: Explain the basis on which the management of an entity must select its accounting policies and distinguish, with an example, between changes in accounting policies and changes in accounting estimates. (b The managementnt are disappointed by the draft profi t for the year ended 30 September 2010. The company's assistant accountant has suggested two areas where she believes the reported profi t may be improved: (i) A major item of plant that cost $20 million to purchase and install on 1 October 2007 is being depreciated on a straight-line basis over a fi ve-year period (assuming no residual value). The plant is wearing well and at the beginning of the current year (1 October 2009) the production manager believed that the plant was likely to last eight years in total (i.e. from the date of its purchase). The assistant accountant has calculated that, based on an eight-year life (and no residual value) the accumulated depreciation of the plant at 30 September 2010 would be $75 million ($20 million/8 years x 3). In the financial statements for the year ended 30 September 2009, the accumulated depreciation was $8 million ($20 million/5 years x 2). Therefore, by adopting an eight-year life, Tunshill can avoid a depreciation charge in the current year and instead credit $05 million ($8 million - $75 million) to the income statement in the current year to improve the reported profit (ii) Most of Tunshill's competitors value their inventory using the average cost (AVCO) basis, whereas Tunshill uses the fi rst in fi rst out (FIFO) basis. The value of Tunshill's inventory at 30 September 2010 (on the FIFO basis) is $20 million, however on the AVCO basis it would be valued at $18 million. By adopting the same method (AVCO) as its competitors, the assistant accountant says the company would improve its profi t for the year ended 30 September 2010 by $2 million. Tunshill's inventory at 30 September 2009 was reported as $15 million, however on the AVCO basis it would have been reported as $134 million Required: Comment on the acceptability of the assistant accountant's suggestions and quantify how they would affect the financial statements if they were implemented under IFRS. Ignore taxation.

Note Non-current assets During the year the company redesigned its display areas in all of its outlets. The previous displays had cost $10 million and had been written down by $9 million. There was an unexpected cost of $500,000 for the removal and disposal of the old display areas. Also during the year the company revalued the carrying amount of its property upwards by $5 million, the accumulated depreciation on these properties of $2 million was reset to zero. All depreciation is charged to operating expenses. Required:

Show a statement of cash flows for Coaltown for the year ended 31 March 2009 in accordance with IAS 7 Statement of Cash Flows by the indirect met (b) The directors of Coaltown are concerned at the deterioration in its bank balance and are surprised that the amount of gross profit has not increased for the year ended 31 March 2009. At the beginning of the current accounting period (i.e. on 1 April 2008), the company changed to importing its purchases from a foreign supplier because the trade prices quoted by the new supplier were consistently 10% below those of its previous supplier. However, the new supplier offered a shorter period of credit than the previous supplier (all purchases are on credit). In order to encourage higher sales, Coaltown increased its credit period to its customers, and some of the cost savings (on trade purchases) were passed on to customers by reducing selling prices on both cash and credit sales by 5% across all products. Required: (i) Calculate the gross profit margin that you would have expected Coaltown to achieve for the year ended 31 March 2009 based on the selling and purchase price changes described by the direc (ii) Comment on the directors' surprise at the unchanged gross profit and suggest what other factors may have affected gross profit for the year ended 31 March 2 (iii) Applying the trade receivables and payables credit periods for the year ended 31 March 2008 to the credit sales and purchases of the year ended 31 March 2009, calculate the effect this would have had on the company's bank balance at 31 March 2009 assuming sales and purchases would have remained unchan Note: the inventory at 31 March 2008 was unchanged from that at 31 March 2007; assume 365 trading data.

A company purchases a deep discount bond with a par value of $500,000 on 1.1.X1 for proceeds of $440,000. Annual coupon payments of 5% are payable on 31 December. The entity incurred transaction costs of $5,867. The bond will be redeemed on 31.12.20X3 at par. The effective interest rate on the bond has been calculated at 9.3%. Required Show the profit or loss impact and carrying value of the bond for each of the years of the bond's life. (20X1 - 20X3).