MODULE CODE: AFU 07304/

TMU 07309/ACU 07314/

BFU 07328

MODULE NAME: INTERMEDIATE FINANCIAL

ACCOUNTING

QUALIFICATION: HIGHER DIPLOMA (NTA LEVEL 8)

BAIT, BACC, BBF & BTX

LECTURE

16/01/2023 - 20/01/2023
TOPIC: IAS 8 - Accounting Policies, changes
in accounting Estimates and Errors
Old standard
Originally: issued 1976
Current version: issued 2003
(effective date 2005)
IAS 8

Objective
Provide guidance on treatment for
accounting policies and their changes,
changes in accounting estimates and
correction of errors and disclosures
 IAS 8

Changes in
Accounting
accounting Errors
policies
estimates
 Coverage
1. Define the term accounting policy and prior period
error
2. Explain the importance of an entity to select its
accounting policy
3. Explain the circumstance in which an entity may
change an accounting policy
4. List the disclosures required after correction of
prior period error
5. Explain accounting estimate and account for a
change
6. Account for a change in an accounting policy

7. Account for the correction of a prior period error

Activity 1:
Define the term accounting policy and
prior period error
Accounting policies are the specific principles,
bases, conventions, rules and practices applied
by an entity in preparing and presenting
financial statements.
Measurement Presentation Recognition
DEPRECIATION: ASSET VS.
INVENTORY: COST OF SALES,
FIFO, LIFO, WAM EXPENSES
OPERATING
EXPENSES
FINANCE COSTS:
PPE: COST OR CAPITALIZATION,
VALUATION WRITE OFF
MODEL
Activity 1:
Define the term accounting policy and
prior period errors
Prior period errors are omissions from, and
misstatements in, the entity’s financial
statements for one or more prior periods
arising from a failure to use, or misuse of
reliable information.
Information was
available when Could reasonably
financial statements expected to have
were authorized been obtained
1. Mathematical mistakes 4. Mispresentation of facts
3. Fraud
2. Mistakes in applying accounting policies 5. Oversights
Activity 2:
Account for the correction of a prior
period error
Accounting treatment : retrospectively in the first set of
financial statements authorised for issue after their
discovery by:

q restating comparative amounts for each prior period presented

in which the error occurred.
q if the error occurred before the earliest prior period presented
restating the opening balances of assets, liabilities and equity
for the earliest prior period presented.
Activity 2:
Account for the correction of a prior
period error
2022 2021

Sales 29,000,000 32,000,000

Cost of Sales 18,000,000 20,000,000

Gross profit 11,000,000 12,000,000

The cost of sales in 2022 includes the Tshs. 2 million error

in opening inventory.

Required: Show the 2022 Statement of Profit or loss

with comparatives figures.
Activity 3:
List the disclosures required after correction
of prior period error
Key disclosures
a) the nature of the prior period error
b) the amount of the correction for each
prior period presented for each line item
affected.
c) the amount of the correction at the
beginning of the earliest prior period
presented.
Activity 4:
Explain the importance of an entity to
select its accounting policy
Selection of accounting
policy

Judgement which
Apply the standard which will result to
that specifically deal relevant and reliable
with the transaction information (Similar
e.g. PPE-IAS 16, standard, IASB
Inventory-IAS 2 framework, national
standards)
Activity 5:
Explain the circumstance in which an
entity may change an accounting policy
§ New IFRS
§ New Policy that will provide relevant and
reliable information e.g. change from FIFO
to WAM
Change in Change in Change in
Measurement Presentation Recognition
DEPRECIATION: ASSET VS.
INVENTORY: COST OF SALES,
FIFO, LIFO, WAM EXPENSES
OPERATING
EXPENSES
FINANCE COSTS:
PPE: COST OR CAPITALIZATION,
VALUATION WRITE OFF
MODEL
Activity 6:
Account for a change in an accounting
policy
Treatment: Changes are applied retrospectively:
§ Restating comparative amounts for each prior period
presented as if the accounting policy had always been
applied.
§ Adjusting the opening balance of each affected
component of equity for the earliest prior period
presented.

Disclosure: The nature, amount and reason for change

and the amount of the adjustment to current and prior
periods for each line item in each period affected
Activity 6:
Account for a change in an accounting
policy
qG ltd adopted IFRSs from the beginning of year 2012. As a
consequence, G ltd changed its accounting policy for the
treatment of borrowing costs that are directly attributable to the
acquisition of a hydroelectric power station under construction
for use by G Ltd. In previous periods, G Ltd had charged such
cost as an expense. G Ltd has now decided to capitalize these
costs, rather than treating them as an expense as a result of
adopting IAS 23.
q G Ltd expensed borrowing costs directly related to construction
of qualifying asset incurred TZS 2,600,000 during 2011 and TZS
5,000,000 in 2010 and TZS 4,000,000 in 2009. G limited
accounting records for 2012 show profit before tax of TZS
27,000,000 (after deducting TZS 3,000,000 borrowing costs
relating to qualifying assets). 13
Activity 6:
Account for a change in an accounting policy
— The income tax is TZS 8,100,000. G Ltd has not yet recognised any
depreciation on the power station because it is not yet in use.
— In 2011, G Ltd reported: TZS
• Profit before interest and tax 20,600,000
• Interest expenses (all on qualifying asset) (2,600,000)
• Profit before tax 18,000,000
• Tax (5,400,000)
• Profit 12,600,000
— Year 2011 required opening retained earnings was TZS 20,000,000 and
closing retained earnings was TZS 32,600,000. G ltd tax rate was 30% for
2012, 2011 and prior periods. G ltd had TZS 10,000,000 of share capital
throughout, and no other components of equity except for retained
earnings.
— Required: Relevant extracts of financial statements with disclosure notes

14
Activity 6:
Account for a change in an accounting policy
Extracts from the notes
— During 2012, G Ltd changed its accounting policy for the treatment of
borrowing cost related to hydroelectric power station under construction
for use by G Ltd. Previously G Ltd expensed such cost as incurred. They
are now capitalised in the cost of asset concerned. The change of policy is
for better presentation and comparison with local industry and for
complying with requirement of IAS 23. This change in accounting policy has
been accounted for retrospectively, and the comparative statements for
2011 have been restated.

15
Activity 7:
Explain accounting estimate and account
for a change
Accounting estimate is a method adopted by
an entity to arrive at estimated amounts for the
financial statements.
q Allowances for debts
q Allowances for inventories
q Useful life of an asset
q Method of depreciating non-current assets
Activity 7:
Explain accounting estimate and account
for a change
Changes in accounting estimate
q Estimates were made based on judgements taking
into account available information
q Later dates may require revision of accounting
estimates based on availability of new information
Treatment: Changes are applied prospectively, i.e. in the
current period (and future periods if the change affects
both current and future periods).

Disclosure: The nature and amount of changes in

accounting estimates that affect current and/or future
periods must be disclosed.
 Accounting estimate vs Accounting
policy
Which of the following is a change in accounting
policy as opposed to a change in estimation
technique?

A. An entity has previously shown depreciation within

cost of sales. It now shows those overheads within
administrative expenses.

B. An entity has previously measured inventory using

the first in first out method and it now intends to
measure inventory using the weighted average cost
method.
C. An entity has previously depreciated vehicles using
the straight line method and now intends to switch to
the reducing balance method
Any Contributions?
19