ACCA Strategic Professional · Strategic Business Reporting (International) · Presentation and disclosure in financial statements
Kappa Co previously measured its inventory using FIFO. Management now wants to switch to weighted average cost because it would give more reliable and relevant information to users. The change is not required by any IFRS Standard. What is the correct treatment under IAS 8?
A voluntary change of policy to a more relevant and reliable basis is applied retrospectively. Kappa restates comparatives and adjusts opening retained earnings of the earliest period presented, unless this is impracticable, rather than taking the effect through current-year profit or loss.
- AApply prospectively from the start of the current period only
- BApply retrospectively, adjusting the opening balance of retained earnings for the earliest period presented and restating comparatives, unless impracticableCorrect
- CRecognise the cumulative effect in profit or loss for the current year
- DApply the change only to inventory purchased after the date of change
Explanation
A voluntary change in accounting policy that gives reliable and more relevant information is applied retrospectively as if always applied. Opening equity of the earliest period presented and comparatives are adjusted. Taking the effect through current profit or loss is wrong because it is not an estimate change.
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