c' The students are aware that many items of financial statements, e.g. provision for doubtful debts and depreciation, are estimates rather than precise measures. As per paragraph 23 of the standard, the change in accounting estimate should be included in the determination of net profit or loss in: (a) the period of change, if the change affects the period only; or (b) the period of change and the future periods, if the change affects both. A change in estimate for doubtful debts affects current period only, while a change in estimated working life of a depreciable asset affects current as well as future periods. The effect of a change in accounting estimate should be classified using the same classification in the statement of profit and loss as was used previously for the estimate (Paragraph 25) If the change of accounting estimate affects an item previously classified as extraordinary item, the effect of change should also be taken as extraordinary item. The nature and amount of change in accounting estimate which has a material effect in the current period, or which is expected to have a material effect in subsequent periods, should be disclosed. If it is impracticable to quantify the amount, this fact should be disclosed. (Paragraph 27) Example 1 An extract from the statement profit and loss of a company for 2005-06 is given below: Rs. 000 Rs. 000 Sales 3,000 Opening stock 500 Production cost 2,800 3,300 Less: Closing Stock 600 2,700 Gross Profit 300 Expenses 250 Profit before tax 50 Tax 20 Profit after tax 30 The closing stock includes stock damaged in a fire in 2004-05. On 31/03/05, the estimated net realisable value of this stock was Rs. 15,000. The revised estimate of net realisable value included in closing stock of 2005-06 is Rs. 5,000. Rewrite the statement of profit and loss if necessary to comply with requirements of AS 5