- 15 Marks
FR – May 2024 – L2 – SB – Q5 – Segment Reporting
Explanation of prior period errors, examples, and correction methods as per IAS 8, along with practical application to inventory errors in Lagos Company Nig. Limited.
Question
a. Errors might happen when preparing financial statements. If such errors are discovered quickly, they are corrected before the finalised financial statements are published. When this happens, the correction of the error is of no significance for the purpose of financial reporting.
However, when an error is discovered that relates to a prior accounting period, a problem may arise.
Required:
Explain prior period errors, giving examples, and discuss how such errors are corrected in accordance with IAS 8 – Accounting Policies, Changes in Accounting Estimates, and Errors. (7 Marks)
b. During the year 2022, Lagos Company Nig. Limited discovered that certain items had been erroneously included in inventory at December 31, 2021. The amount was valued at ₦16.8 million, which had been sold before the year-end.
The following figures for the year 2021 (as reported) and 2022 (draft) are available as follows:
| 2022 (Draft) | 2021 (Published) | |
|---|---|---|
| Revenue | ₦268,800,000 | ₦189,600,000 |
| Cost of sales | (₦223,200,000) | (₦138,280,000) |
| Profit before tax | ₦45,600,000 | ₦51,320,000 |
| Income tax expense | (₦13,600,000) | (₦15,520,000) |
| Profit for the year | ₦32,000,000 | ₦35,800,000 |
The retained earnings at January 1, 2021, were ₦52 million. The cost of sales for the year 2022 includes a ₦16.8 million error in the opening inventories. The company income tax rate is 30%.
Required:
Prepare a statement of profit or loss and other comprehensive income for the year ended December 31, 2022, and retained earnings extracts showing comparative figures. (8 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: Financial Reporting, IAS 8, Prior Period Errors, Retrospective Adjustments
- Level: Level 2
- Topic: Segment Reporting (IFRS 8)
- Series: MAY 2024