Part B: (7 Marks)

Banana Software Ltd has two cost centers relating to the development and sale of the computer games. The indirect overhead cost attributable to the two cost centers were allocated in the year to 31 March 2018 in the ratio 60:40 respectively. Also in that financial year, the direct labour costs and attributable overhead costs incurred on the development of original games software were carried forward as work-in-progress and included with the statement of financial position total for inventory of computer games. Inventory of computer games includes directly attributable overheads. In the year to 31 March 2019, Banana has allocated indirect overhead costs in the ratio 50:50 to the two cost centers and has written the direct labour and costs incurred on the development of the games off to the income statement. Banana has stated that it cannot quantify the effect of this write off on the current years income statement. Further, it proposes to show the overhead costs relating to the sale of computer games within distribution costs. In prior years these costs were shown in cost of sales.

Required:

Explain the implications of the changes in accounting approach in the financial statements and suggest appropriate accounting treatments. [7 marks]