Financial Reporting

9. During 2015, Delta Power Company changed its accounting policy for the treatment of borrowing costs that are directly attributable to the construction costs of a hydroelectric power station that is now under operation. On December 31, 2014 at the end of construction the Hydro-Electric power satiation shows a balance of GHC1,284,000. In previous periods, Delta had capitalized on such costs. It has now decided to treat them as an expense, rather than capitalize them. Management judges that the new policy is preferable because it results in a more transparent treatment of finance costs and is consistent with local industry practice, making Delta's financial statement more comparable. Delta Power capitalized borrowing costs incurred of GHC36,000 during 2014 and GHC48,000 in periods just prior to 2014. The accounting records for 2015 show earnings before interest and taxes of GH320,000 and interest expense of GHC24,000 (which relates to 2015). The power station is under operation since the beginning of 2015, during 2015 the entity has recognized a depreciation of GHC50,000 on the power station because it is now in use. In 2014, Delta reported; earnings before interest expense and taxes GH190,000 and no interest expenses. 2014 opening retained earnings was GHC200,000 and closing retained earnings was GHC333,000. Delta had GH100,000 of share capital throughout, during 2015 Delta issued new equity of GHC200,000 at a premium of 20% to support its working capital needs. Delta has no other components of equity and is subject to 30% tax bracket. Required: i. Restated income statement for the year ended 2014 and income statement for the year ended 2015. ii. Prepare the statement of changes in stockholders' equity showing the effect of changes in accounting policy Tabulate the effect of above change on Hydro-Electric Power Station. iv. What information should be disclosed in the financial statement for the above changes in accounting policy