- 10 Marks
FR – Nov 2020 – L2 – Q2d – Accounting Policies, Changes in Accounting Estimates, and Errors (IAS 8)
Required adjustments for Eko Transport Company’s overstated inventory, dividend error, and omitted share issue.
Question
Eko Transport Company (ETC) Limited is preparing its financial statements for the year ended August 31, 2019. The draft statement of changes in equity is presented as follows:
Additional Information:
- On January 10, 2020, ETC Limited discovered that inventory was overstated by N105 million as at August 31, 2019, and by N90 million as at August 31, 2018.
- There was a transposition error in reporting dividend payments in the statement of changes in equity. The correct figure as at August 31, 2019, was N105 million.
- The company income tax rate is 30% in each year.
- On August 31, 2019, additional shares of 50,000,000 were issued at N1.25 per share. The par value of ETC Limited shares is N1.00 per share. This was inadvertently omitted in the record.
You are required to prepare:
i. Revised Comparative Income Statements after necessary adjustments for the years ended August 31, 2018, and 2019. (3 Marks)
ii. Adjusted Statement of Changes in Equity as at August 31, 2019. (5 Marks)
iii. The journal entries to correct the errors in (2) and (4) above. (2 Marks)
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