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een applied. The impact of the new policy on the retained earnings prior to the earliest period presented should be adjusted against the opening balance of retained
earnings.
CASE STUDY 1
Facts
1. All Change Co. Inc. changed its accounting policy in 20X9 with respect to the valuation of inventories. Up to 20X8, inventories were valued using
a weighted-average cost (WAC) method. In 20X9 the method was changed to first-in, first-out (FIFO), as it was considered to more accurately
reflect the usage and flow of inventories in the economic cycle. The impact on inventory valuation was determined to be
Required
2. The statements of comprehensive income prior to adjustment are
At December 31, 20X7: an increase of $10,000
At December 31, 20X8: an increase of $15,000
At December 31, 20X9: an increase of $20,000
20X9 20X8
Revenue $250,000 $200,000
Cost of sales 100,000 80,000
Gross profit 150,000 120,000
Administration costs 60,000 50,000
Selling and distribution costs 25,000 15,000
Net profit $ 65,000 $ 55,000
Present the change in accounting policy in the Statement of Comprehensive Income and the Statement of Changes in Equity in accordance with the
requirements of IAS 8.
Solution
The statements of comprehensive income after adjustment would be
Explanation
ALL CHANGE CO. INC.
STATEMENT OF COMPREHENSIVE INCOME
For the Year Ended December 31, 20X9
20X9 20X8 (restated)
Revenue $250,000 $200,000
Cost of sales 95,000 75,000
Gross profit 155,000 125,000
Administration costs 60,000 50,000
Selling and distribution costs 25,000 15,000
Net profit 70,000 60,000