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CA Final · Financial Reporting · Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Kaveri Textiles Ltd is finalising its financial statements. The finance team lists four items it handled during the year. Which item is an accounting estimate as defined in Ind AS 8, that is, a monetary amount in the financial statements subject to measurement uncertainty?

The allowance for expected credit losses is the accounting estimate. Ind AS 8 defines accounting estimates as monetary amounts in financial statements subject to measurement uncertainty, and recoverability of receivables depends on judgement. Choosing a cost formula is a policy, a misread invoice is an error, and reclassifying freight is a presentation change.

  1. AThe allowance for expected credit losses on trade receivables, computed using management's best judgement of recoverabilityCorrect
  2. BThe choice of the first-in, first-out formula instead of the weighted average formula for costing inventory
  3. CThe omission of a supplier invoice from payables because a clerk misread the invoice date
  4. DThe reclassification of freight outward from administrative expenses to selling expenses for better presentation

Explanation

Ind AS 8 defines accounting estimates as monetary amounts in financial statements that are subject to measurement uncertainty. The credit loss allowance depends on judgement about future recoveries, so it is an estimate. The FIFO choice is a policy (a basis or practice), the missed invoice is an error, and the freight reclassification is a presentation matter.

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