Cost of a machine acquired on 01/04/2010 was 1,00,000. The machine is expected to realise 75,000 at the end of its working life of 10 years. Straight-line depreciation of 39,500 per year has been charged upto 2011-12. For and from 2012-13, the company switched over to 17% p.a. reducing balance method of depreciation in respect of the machine. The new rate of depreciation is based on revised useful life of 13 years. The new rate shall apply with retrospective effect from 01/04/10. 04 WDV of asset at the end of 2011-12= 1,00,000 - 9,500 x 2 = 781,000 WDV of asset at the end 2011-12 (by reducing balance method) = 1,00,000 (1 - 0.17)2 = 68,890 Depreciation to be charged in 2012-13 = (* 81,000 - 3 68,890) + 17% of 68,890 = 23,821 In this example, the revision of remaining useful life is change in accounting estimate, and adoption of reducing balance method of depreciation instead of the straight-line method is change in accounting policy. Since it is difficult to segregate impact of these two changes, the entire amount of difference between depreciation at old rate and depreciation charged in 2012-13 ( 23,821 - 39,500 = 7 14,321) is regarded as effect of change in accounting estimate as per paragraph 22 of the standard. The company finds that the stock sheets of 31.3.2012 did not include two pages containing details of inventory worth 20 lakhs. State, how will you deal with this matter in the accounts of A Ltd., for the year ended 31st March, 2013 with reference to AS 5. As per para 16 of AS 5 on 'Net Profit or Loss for the Period, Prior Period items and Changes in Accounting Policies', omission of two pages containing details of inventory worth 20 lakhs in 31.3.2012 is a prior period item. As per para 19 of the standard, prior period items are normally included in the determination of net profit or loss for the current period. Accordingly, 20 lakhs must be added to opening stock of 1.4.2012. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss. Illustration 8 Explain whether the following will constitute a change in accounting policy or not as per AS 5. (1) Introduction of a formal retirement gratuity scheme by an employer in place of ad hoc ex-gratia payments to employees on retirement (ii) Management decided to pay pension to those employees who have retired after completing 5 years of service in the organistaion. Such employees will get pension of 20,000 per month. Earlier there was no such scheme of pension in the organization