SEMINAR QUESTIONS TOPIC 2: ACCOUNTING FOR CHANGE IN ACCOUNTING
POLICIES, ACCOUNTING ESTIMATE AND ERRORS.
QUESTION ONE:
Use at least three examples to explain the circumstances where changes in accounting policies are
justified.
QUESTION TWO
During 2019, ABC Co has reported depreciation in its expenses. However, the directors feel that
they should split depreciation into two parts i.e. depreciation on factory equipment and
depreciation on office furniture. Depreciation on factory equipment will be reported in the cost of
sales and depreciation on office furniture will be reported in expenses. The proposed financial
statements are as follows:
STATEMENT OF COMPREHENSIVE INCOME
2006 ‘Tshs’
2005 ‘Tshs’
Sales
Cost of sales
Purchases
Add: Depreciation on Equipment
×××
Gross Profit
Expenses
Depreciation on office furniture
Profit
Required:
Decide whether this is a permissible change.
×××
×××
QUESTION THREE
BAF students Association follows the accounting policy of depreciating its plant and machinery
using the straight line method. The company feels that the Written Down Value Method (WDV)
method of depreciation is more realistic. Therefore, it wishes to change its accounting policy to
valuation under WDV method.
Required: Discuss, giving proper reasons, whether it can do so.
QUESTION FOUR
Mdegree Ltd is preparing its financial statements for 2023. The management wishes to change the
valuation of its inventory from the FIFO method to the Weighted Average method.
Required: Discuss whether the change would warrant a prior period adjustment.
QUESTION FIVE
An entity procures a second-hand machine and determines the depreciation charge based on the
expected life of the machine. However, at a future period, the entity realizes that the estimated life
of the machine does not match the original estimate. As a result, there is a change in the rate of
depreciation from 10% to 12%.
Required: Can this change in the depreciation rate qualify for retrospective restatement?
QUESTION SIX
The original cost of equipment is Tshs115 million and an estimated useful life of ten years with a
nil residual value. It is depreciated on a straight line basis annually that comes to Tshs11.5 million
p.a. The carrying amount of the equipment after three years will be Tshs80.5 million. It was
decided in the fourth year that the remaining useful life of the equipment is only three years and
not seven years.
Required: State the accounting treatment of the asset in the books.