Question:
(a) IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors lays down criteria for the selection of accounting policies and prescribes circumstances in which an entity may change an accounting policy. The standard also deals with accounting treatment of changes in accounting policies, changes in accounting estimates and correction of prior period errors.
Required:
(i) Define an accounting policy according to IAS 8. Explain briefly the difference between an accounting policy and an accounting estimate.
(ii) Outline the accounting treatment required to record
(1) a change in accounting policy,
(2) a change in accounting estimate and
(3) the correction of an error.
(b) The following are summaries of the draft financial statements of Sigma plc for financial year ended 31 July 2015 together with the comparative figures for 2014. During August 2015, prior to the signing off of the financial statements, it was discovered that a fraud had been taking place in the company for the previous three years. The chief financial officer had been misappropriating monies paid to the company by its customers, the amounts instead appearing as receivables. The effect of the fraud was that amounts shown in the financial statements as receivables need to be written off as they were in fact paid. There is no prospect of recovering the money as the employee lost it gambling and is now bankrupt. The amounts were as follows for each period ending on the following dates:
31 July 2013: €14,000
31 July 2014: €16,000
31 July 2015: €20,000.
Statements of Profit or Loss and Other Comprehensive Income for year ended 31 July:
Statements of Changes in Equity (Retained Earnings only) for year ended 31 July:
Statements of Financial Position as at 31 July:
Required:
Restate the above financial statements, including comparatives, incorporating the adjustments you deem necessary as a result of the fraud. Ignore the effect of taxation. Disclosure notes are not required.
Transcribed Image Text:
2015 2014 €000 €000 Revenue 300 275 Cost of sales (225) (212) 75 Gross profit Expenses Profit for year 63 (30) (26) 45 37 2015 2014 €000 €000 Balance I August Profit for the year Dividends declared 258 236 45 37 (16) 287 (15) Balance 31 July 258 2015 2014 €000 €000 Non-current Assets 294 306 Net current Assets 143 102 437 408 Equity Share Capital Retained Earnings 150 150 287 258 437 408
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