Question
shane is the auditor of Group 5 Ltd, and she is currently finalizing the 2019 financial statements. Due to the changes in IFRS, the company
shane is the auditor of Group 5 Ltd, and she is currently finalizing the 2019 financial statements. Due to the changes in IFRS, the company now needs to include fixed overheads in the determination of inventories, as required by IAS 2 Inventories. Previously fixed overheads were excluded in inventory valuations.
The accountant presented you with the following figures relating to the new and old methods of inventory valuation 2019 2018 2017
N$ N$ N$
Closing inventories, including fixed overheads 520 000 330 000 410 000
Closing inventories excluding fixed overheads 470 000 320 000 380 000
The preliminary Statement of Profit or Loss and other comprehensive income for the period ended 31 December 2019 (before any of the above-mentioned facts were taken into account) is as follows:
2019 2018
N$ N$
Revenue 3 215 000 2 750 000
Cost of sales (1 260 000) (1 325 000)
Gross Profit 1 955 000 1 425 000
expenses (1 270 000) (940 000)
Profit for the period 685 000 485 000
Other comprehensive income - -
Total comprehensive income 685 000 485 000
Retained earnings at the beginning of 2019 amount to N$945 000 (2018 N$460 000) Ignore tax implications Required:
1.3 Calculate the profit for the years 2019 and 2018 based on the new valuation applied to inventories.
1.4 Disclose the note applicable to the reporting period 31 December 2019 relating to the change in accounting policy on inventories in order to comply with IFRS
1.5 Present the statement of changes in equity for the reporting period ended 31 December 2019
1.6 List and discuss the procedure followed when a company is selecting an accounting policy
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