Question
Penhallow Ltd: deal with an inventory error, a capital item expensed in error, a retrospective change to FIFO and a revised useful life — restating 2025, correcting 2026 and rebuilding retained earnings.
Statements in this challenge
- Restated 2025 ProfitNumeric Answer
- Restated Opening Retained EarningsNumeric Answer
- Correct 2026 ProfitNumeric Answer
- Journal EntriesJournal Entry
- Closing Retained EarningsNumeric Answer
- Effect of the ErrorsStatement Impact
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors
Classify the change before accounting for it. A change of accounting policy is applied retrospectively with comparatives restated; a change in an accounting estimate is applied prospectively from the date of change, with nothing restated.
Common mistakes
- Restating comparatives for what is really a change in estimate, such as a revised useful life.
- Applying a policy change prospectively when retrospective application is required and practicable.
- Omitting the adjustment to the opening balance of retained earnings on a retrospective change.
Further readingIAS 8: policies vs estimates vs errors