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IAS 8Case studies (Step 3 of 5)

Case study

Step 3 of 5

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors — wording before IFRS 18Applicable today

Applies to annual periods beginning before January 1, 2027.

Practical caseIAS 8L1 · Fundamental

Policy, estimate or error? Reasoned sorting of ten changes in a distribution SME

4 documents6 tasks≈ 50 min
0 / 9 items completed
Standards
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
Assistance levelFull guidance · strong assistance
  • Method: shown
  • Checklist: shown
  • Hints: shown
  • Step-by-step work: shown

Case brief

Situation

Ondalys Distribution SAS (fictitious entity) is preparing its 20X5 statements. The chief accountant has listed ten changes that arose during the year. You are asked to classify them before the statements are approved, without any restatement calculation at this stage (dealt with in other cases).

Your assignment

Classify the ten changes in D1, assess the three announced changes in policy, measure what the classification of the supplier claim puts at stake, correct the current period error and measure its effect, then conclude.

Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.

Fundamental level: the method, help and references are shown.

Method

  1. Read the brief and the assignment.
  2. Open each document and spot the relevant data.
  3. Carry out the work in the suggested order.
  4. Submit, then read the conclusion and the model answer.

File checklist

  • Open each piece (0 / 4 consulted) · to do
  • Sort the information in the pieces · to do
  • Carry out the work (0 / 9) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

4 documents: open each one to read it.

Document 1Memo

Closing memo: ten changes of the 20X5 financial year

Memo from the chief accountant of Ondalys Distribution SAS (fictitious entity, office equipment distributor), dated 20 February 20X6. The 20X5 statements have not yet been approved; the 20X4 statements were authorised for issue on 18 March 20X5. Changes noted: (1) the useful life of the delivery vans goes from 5 to 7 years, following mileage tracking set up in 20X5; (2) the inventory cost formula changes from FIFO to weighted average cost (see D3); (3) a December 20X5 transport invoice of 18,400 was not recorded (see D2); (4) a December 20X4 warehouse rent of 9,600, invoiced in January 20X5 before the 20X4 statements were approved, was never accrued or recognised in 20X4; (5) an equipment rental business, which did not exist before, starts in 20X5 and is given an accounting policy; (6) the expected credit loss rates on receivables are updated with the 20X5 default statistics; (7) land is measured for the first time under the revaluation model; (8) investment property moves from the cost model to the fair value model; (9) a claim against a supplier, for which no amount had been recognised, is settled in 20X5 by a payment of 12,000 received by Ondalys; (10) the fair value of an unlisted investment is now estimated by discounting cash flows rather than by market multiples. Draft 20X5 profit, before items 3 and 9: 314,400.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Draft 20X5 profit (before items 3 and 9)€314,400.00
December 20X4 rent not recognised€9,600.00
Payment received on settlement of the supplier claim€12,000.00
Authorisation date of the 20X4 statementsMarch 18 20X5
December 20X5 transport invoice€18,400.00

Sorting the information

Not every document matters: identify those that affect the accounting treatment.

Part 1 · Classification · Analysis

Sort each document: does it affect the accounting treatment?

Drag each item into its category, or tap the category under the item.

To sort4

  • Closing memo: ten changes of the 20X5 financial year

  • December 20X5 transport invoice

  • Management memo on the cost formula

  • Extract from the 20X4 letter to shareholders

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      6 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.

      1. Task 1Analysis

        Classify each of the ten changes: change in accounting policy, change in estimate, error (current or prior period) or neither.

        Set out the facts, the question raised, then your analysis.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      2. Task 2Professional judgement

        Are changes 2, 7 and 8 permitted changes in accounting policy, and under which rules?

        Distinguish the case data, the assumption and your judgment.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      3. Task 3Professional judgement

        Measure what the classification of change 9 puts at stake: corrected 20X5 profit and profit if the payment were wrongly treated as an error correction.

        Distinguish the case data, the assumption and your judgment.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Calculation

        Measure what the classification of change 9 puts at stake: corrected 20X5 profit and profit if the payment were wrongly treated as an error correction.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: What the classification of item 9 puts at stake

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      4. Task 4Journal entries

        Post the entry that corrects change 3 in the 20X5 statements.

        Identify the accounts affected and the direction of each movement; check the balance.

        Calculator

        Click in an answer field to be able to insert the result.

        Part 1 · Journal entry · Journal entries

        Entry 1 of 1

        One line = one account and one side. Add a line if the entry needs more; the balance check updates live.

        1. Line 1

        2. Line 2

        TotalsDebit0Credit0

      5. Task 5Effects on the financial statements

        What is the effect of this entry on the 20X5 financial statements?

        For each financial statement, state the line affected, the direction and the amount.

        Part 1 · Classification · Analysis

        State the direction of the effect on each financial statement aggregate.

        1. Financial position (balance sheet)

        2. Profit or loss

        3. Other comprehensive income

        4. Equity

        Calculator

        Click in an answer field to be able to insert the result.

        Part 2 · Calculation · Analysis

        Quantify the effect on the aggregates concerned.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      6. Task 6Conclusion

        Write the conclusion.

        Write a conclusion that cites the facts and the treatment chosen.

        This answer is not marked automatically: after submitting, you will compare it with the solution.

      Workspace

      Your working draft for this file: points noted, leads, intermediate calculations.

      Saved on this device only; never graded.

      Conclusion

      Submission and solution

      Complete every item of the file to submit it (0 / 9).

      Document this file

      These working papers use the data and results of this case.

      Normative references

      • IAS 8 §5
      • IAS 8 §14
      • IAS 8 §16
      • IAS 8 §17
      • IAS 8 §34
      • IAS 8 §34A
      • IAS 8 §35
      • IAS 8 §41
      • IAS 8 §48