Further Practice Question 4

Bolton Limited (BL) is revising the policy of stock valuation (cost flow formula) from
weighted average to FIFO method. Following are the extracts from draft Financial
Statements of BL (31 December 2022):

Statement of Comprehensive Income

2022 2021
Profit for the year 650,000 580,000

Statement of Changes in Equity

Opening Balance (1 Jan 2021) 1,899,000

Profit for 2021 580,000
Dividend Paid during 2021 (175,000)
Closing Balance (31 Dec 2021) 2,304,000
Profit for 2022 650,000
Dividend Paid during 2022 (205,000)
Closing Balance (31 Dec 2022) 2,749,000

Statement of Financial Position

2022 2021
Stock in trade 260,000 232,000
Retained Earnings 2,749,000 2,304,000

Balances of stock in trade and retained earnings at 31 December 2020 were Rs 242,600 and
Rs 1,899,000 respectively.

Changes in value of stock shall be:

1. Increase in closing stock of 2019 Rs 24,000

2. Increase in closing stock of 2020 Rs 17,000
3. Reduction in closing stock of 2021 Rs 31,000
4. Increase in closing stock of 2022 Rs 40,000

Required
1. Prepare extract (revised) of:
a. Statement of Changes in Equity
b. Statement of Comprehensive Income
c. Statement of Financial Position
2. Change in Accounting Policy note
Solution of Further practice 4

Impact of changes in accounting policy on profits

2019 2020 2021 2022
Due to Opening Stock (24,000) (17,000) 31,000
Due to Closing Stock 24,000 17,000 (31,000) 40,000
Net Impact on Profit 24,000 (7,000) (48,000) 71,000

Statement of Comprehensive Income

(Re-stated)
2022 2021
Profit for the year 650,000 580,000
Change in Acc Policy 71,000 (48,000)
Revised Profit 721,000 532,000

Statement of Changes in Equity

Opening Balance (1 Jan 2021) 1,899,000
Change in Acc Policy 17,000 24k-7k
Opening Balance (1 Jan 2021) - Re-stated 1,916,000
Profit for 2021 - Re-stated 532,000
Dividend Paid during 2021 (175,000)
Closing Balance (31 Dec 2021) - Re-stated 2,273,000
Profit for 2022 721,000
Dividend Paid during 2022 (205,000)
Closing Balance (31 Dec 2022) 2,789,000

Change in Accounting Policy Note

Effects on Statement of Comprehensive Income

2022 2021
Effect on Incomes
Nil

Effect on expenses
Cost of goods sold Increased by (48,000)
Cost of goods sold reduced by 71,000
Profit changed by 71,000 (48,000)

Effects on Statement of Financial Position

2022 2021 2020

Stock Increased / (Decreased) by 40,000 (31,000) 17,000
Retained earnings 40,000 (31,000) 17,000

Extracts from Statement f Financial Position

2022 2021 2020

Stock in trade 300,000 201,000 259,600
(260k+40k) (232k-31k) (242.6k + 17k)

Retained earnings (From SOCE) 2,789,000 2,273,000 1,916,000