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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 8L2 · Intermediate

Provision omitted and discovered the following year: restatement of comparatives and tax effect

4 documents10 tasks≈ 75 min
0 / 15 items completed
Standards
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
Assistance levelHelp on demand · assistance on request
  • Method: on request
  • Checklist: on request
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Maison Quérande SA (fictitious entity) is preparing its 20X5 statements, which present 20X4 as comparative. In October 20X5, internal audit found a warranty provision omitted since 20X3. You prepare the restatement.

Your assignment

Qualify the omission, isolate the 20X4 part, compute the tax effect, restate the 20X4 opening balances, the comparative line items and profit, reconcile equity, present the entries and their effect, then state the disclosures and 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.

Intermediate level: help remains available, on demand.

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 / 15) · to do
  • Submit the file, then assess yourself · to do

Documents

File documents

4 documents: open each one to read it.

Document 1Table

Warranty claim statistics

Maison Quérande SA (fictitious entity) sells household appliances with a two-year warranty. In October 20X5, internal audit found that, since 20X3, the spreadsheet used for the warranty provision had left out the "cooking" range, although the claim statistics for that range were available every year before the statements were approved. Omitted provision, recomputed with the statistics of the time: 80,000 at 31 December 20X3 and 128,000 at 31 December 20X4.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
Omitted provision at 31 December 20X3€80,000.00
Omitted provision at 31 December 20X4€128,000.00
Reported retained earnings at 1 January 20X4€1,450,000.00
Reported 20X4 profit€410,000.00
Dividends 20X4€150,000.00
Reported retained earnings at 31 December 20X4€1,710,000.00
Reported other operating expenses 20X4€2,340,000.00
Reported provisions at 31 December 20X4€210,000.00
Tax rate25%
20X4 materiality threshold€50,000.00

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

  • Warranty claim statistics

  • Published 20X4 financial statements (extracts)

  • Tax note and materiality threshold

  • 20X6 marketing plan

Relevant to the treatment0

    No effect0

      Questions

      Work programme

      10 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

        Is the omission a prior period error to be corrected by restatement? In which statements and at which dates?

      2. Task 2Calculation

        Isolate the part of the error relating to the 20X4 comparative period.

        Calculator

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

        Part 1 · Calculation

        Isolate the part of the error relating to the 20X4 comparative period.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      3. Task 3Calculation

        Compute the tax effect at the opening of 20X4 and for 20X4, and the net amounts.

        Calculator

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

        Part 1 · Calculation

        Compute the tax effect at the opening of 20X4 and for 20X4, and the net amounts.

        1. €
        2. €
        3. €
        4. €

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Net effect on 20X4 profit

      4. Task 4Calculation

        Determine restated retained earnings at 1 January 20X4.

        Calculator

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

        Part 1 · Calculation

        Determine restated retained earnings at 1 January 20X4.

        1. €

        Checks

        • 0 / 1 step entered
        • Amounts readable

      5. Task 5Calculation

        Restate other operating expenses, provisions and profit for 20X4.

        Calculator

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

        Part 1 · Calculation

        Restate other operating expenses, provisions and profit for 20X4.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Restated 20X4 profit

      6. Task 6Calculation

        Reconcile restated retained earnings at 31 December 20X4.

        Calculator

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

        Part 1 · Calculation

        Reconcile restated retained earnings at 31 December 20X4.

        1. €
        2. €

        Checks

        • 0 / 2 steps entered
        • Amounts readable

        Result: Reported − restated difference at 31 December 20X4

      7. Task 7Journal entries

        Present the restatement entries: 20X4 opening balances and 20X4 comparative column.

        Calculator

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

        Part 1 · Journal entry · Journal entries

        Entry 1 of 4

        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

        Calculator

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

        Part 2 · Journal entry · Journal entries

        Entry 2 of 4

        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

        Calculator

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

        Part 3 · Journal entry · Journal entries

        Entry 3 of 4

        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

        Calculator

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

        Part 4 · Journal entry · Journal entries

        Entry 4 of 4

        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

      8. Task 8Effects on the financial statements

        What is the cumulative effect of the restatement on the statement of financial position at 31 December 20X4 and on 20X4 profit?

        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. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Amount of the effect — Equity

      9. Task 9Analysis

        What should be disclosed in the notes?

      10. Task 10Conclusion

        Write the conclusion.

      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 / 15).

      Document this file

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

      Normative references

      • IAS 8 §5
      • IAS 8 §4
      • IAS 8 §41
      • IAS 8 §42
      • IAS 8 §46
      • IAS 8 §49