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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 8L3 · Advanced

Voluntary change in the inventory cost formula: justification, restatement and disclosures

4 documents10 tasks≈ 90 min
0 / 15 items completed
Standards
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
Assistance levelNo help · reduced assistance
  • Method: withdrawn
  • Checklist: withdrawn
  • Hints: withdrawn
  • Step-by-step work: shown

Case brief

Situation

Quincaillerie Talmeuse SA (fictitious listed entity) moves from weighted average cost to FIFO for a range of steel sheets from 20X5. You prepare the restatement of the 20X4 comparatives and the note.

Your assignment

Assess whether the change is permitted and how it is applied, measure inventory under both formulas, determine the cumulative effects and the effect specific to 20X4, their tax effects, the restated opening equity, the entries and their effect, identify the missing information and list the disclosures.

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.

Advanced level: no help, the work is grouped by kind.

Documents

File documents

4 documents: open each one to read it.

Document 1Memo

Management memo on the change in cost formula

Quincaillerie Talmeuse SA (fictitious entity) sells a range of steel sheets launched on 1 January 20X3 and measured so far at weighted average cost computed over the year. From the 20X5 financial year, management adopts FIFO: the sheets are stored in dated batches and sold in the order they came in, so FIFO follows the physical flow and brings the value of inventory closer to its replacement cost, in a market where prices rise steadily. The 20X5 statements present 20X4 as comparative. No IFRS requires this change.

Data

Key data from the documents

The figures of the documents, gathered for your work.

ItemValueFound in
20X3 purchase 1 (quantity)6,000 units
20X3 purchase 1 (unit cost)€20.00
20X3 purchase 2 (quantity)8,000 units
20X3 purchase 2 (unit cost)€23.00
20X3 purchase 3 (quantity)6,000 units
20X3 purchase 3 (unit cost)€27.00
Units sold in 20X315,000 units
20X4 purchase 1 (quantity)10,000 units
20X4 purchase 1 (unit cost)€28.00
20X4 purchase 2 (quantity)10,000 units
20X4 purchase 2 (unit cost)€30.00
Units sold in 20X421,000 units
Reported retained earnings at 1 January 20X4€2,300,000.00
Tax rate25%

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

  • Management memo on the change in cost formula

  • Purchases and issues of sheets 20X3 and 20X4

  • Published equity and tax

  • A competitor's price list

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 change permitted and how must it be applied?

      2. Task 2Calculation

        Measure inventory at 31 December 20X3 and 31 December 20X4 under both formulas.

        Calculator

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

        Part 1 · Calculation

        Measure inventory at 31 December 20X3 and 31 December 20X4 under both formulas.

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

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Inventory at 31 December 20X4, FIFO

      3. Task 3Calculation

        Determine the cumulative effect at the opening of 20X4, at the end of 20X4 and the effect specific to 20X4.

        Calculator

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

        Part 1 · Calculation

        Determine the cumulative effect at the opening of 20X4, at the end of 20X4 and the effect specific to 20X4.

        1. €
        2. €
        3. €

        Checks

        • 0 / 3 steps entered
        • Amounts readable

        Result: Increase in 20X4 cost of sales

      4. Task 4Calculation

        Compute the tax effects and the corresponding net amounts.

        Calculator

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

        Part 1 · Calculation

        Compute the tax effects and the corresponding net amounts.

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

        Checks

        • 0 / 4 steps entered
        • Amounts readable

        Result: Net decrease in 20X4 profit

      5. Task 5Calculation

        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

      6. Task 6Journal entries

        Present the restatement entries (opening of 20X4 and 20X4 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

      7. Task 7Effects on the financial statements

        What is the cumulative effect of the change at 31 December 20X4?

        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

      8. Task 8Missing information

        What information is missing to complete the note?

      9. Task 9Analysis

        What must be disclosed about this voluntary change?

      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 §4
      • IAS 8 §14
      • IAS 8 §19
      • IAS 8 §22
      • IAS 8 §29