SOLUTION TO EG 1: CHANGE IN ACCOUNTING EST AFFECTING CURRENT YEAR ONLY 2010 2009 debtors provision for doubtful debts

doubtful debts expense is doubtful debts expense would have been effect of change in estimate on DD exp 150 000 30 000 20 000 5 000 15 000 100 000 10 000 10 000 N/A N/A

Debit Credit 2010: jnls that would now be required Doubtful debt expense 20 000 Doubtful debts allowance 20 000 Doubtful debt allowance adjustment: 20% of trade debtors balance less o/bal: (20% x 150 000) 10 000 SOLUTION TO EG 1 B Journals: assuming a 10% adjustment had already been made in 2010 Debit Credit 2010: jnls that had already been processed Doubtful debt expense 5 000 Doubtful debts allowance 5 000 Doubtful debt allowance adjustment: 10% of trade debtors balance less o/bal (10% x 150 000) 10 000 2010: jnls that would now be required Doubtful debt expense 15 000 Doubtful debts allowance 15 000 Change in estimate: Doubtful debt allowance now 20% of trade debtors: 20% of trade debtors balance less o/bal less previous adj (20% x 150 000) 10 000 5 000 SOLUTION TO EG 1 C Notes to the financial statements 3. Profit before tax Profit before tax is stated after taking the following items into account: 2010 C 20 000 Doubtful debts expense as previously calculated - change in accounting estimate 5 000 15 000

2009 C 10 000 10 000 0

4. Change in Accounting Estimate Doubtful debts were recalculated at 20% as opposed to 10% of the trade debtors balance. The increase or (decrease) in profit relating to the change is as follows: 2010 C Current years profit (15 000) Future years profits 0

Moodle - IAS 8 - part 1A - estimates - solutions to lecture eg's

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SOLUTION TO EG 2 A: RE-ALLOCATION METHOD Reallocation method Cost: 01/01/2008 Acc depn: 31/12/2010 Carrying amt: end 2010

Calculations Given 100 000 / 10 x 3 yrs Allocate to is column (10 3yrs) (5 3 yrs) (70 000 / 7 yrs) (70 000 / 2 yrs)

Was (a) 100 000 (30 000) 70 000

Is (b)

Difference (b) (a)

70 000

Remaining useful life

Depreciation: 2011 Carrying amt: end 2011 Depreciation future Carrying amt: final

7 years
(10 000) 60 000 (60 000)

2 years
(35 000) 35 000 (35 000) (25 000) (25 000) 25 000 0

Extra depreciation Less deprec (future adj)

6 yrs
0

1 yr
0

SOLUTION TO EG 2 A: RE-ALLOCATION METHOD Debit 2011: jnls that had already been processed Depreciation expense Machinery: accumulated depreciation Depreciation on machinery: (C100 000 RV: 0) / 10 years x 1 (or see working) 2011: jnls that would now be required Depreciation expense Machinery: accumulated depreciation Change in estimate (RAM): Depreciation on machinery: New depr: 35 000 Depr already processed: 10 000 (See working) SOLUTION TO EG 2 A: DISCLOSURE 3. Profit before tax Profit before tax is stated after taking the following items into account: 2011 35 000 10 000 25 000 2010 10 000 10 000 0 10 000 10 000 Credit

25 000 25 000

Depreciation of machinery - previous estimate - change in estimate 4. Change in Accounting Estimate The (increase)/ decrease relating to the change is as follows:

current years profits future years profits

2011 25 000 (25 000)

Moodle - IAS 8 - part 1A - estimates - solutions to lecture eg's

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SOLUTION TO EG 2 B: CUMULATIVE CATCH-UP METHOD Cumulative method Cost: 01/01/2008 Acc depn: 31/12/2010 Carrying amt: end 2010

Calculations Given 100 000 / 10 x 3 yrs 100 000 / 5 x 3 yrs Allocate to is column (10 3yrs) (5 3 yrs) (70 000 / 7 yrs) (40 000 / 2 yrs)

Was (a) 100 000 (30 000) 70 000

Is (b) 100 000 (60 000) 40 000

Difference (b) (a) (30 000) (30 000)

Extra deprec

Remaining useful life

Depreciation: 2011 Carrying amt: end 2011 Depreciation future Carrying amt: final

7 years
(10 000) 60 000 (60 000)

2 years
(20 000) 20 000 (20 000) (10 000) (40 000) 40 000 0

Extra deprec

6 yrs
0

1 yr
0

Less deprec (future adj)

SOLUTION TO EG 2 B: CUMULATIVE CATCH-UP METHOD Journals: assuming depreciation had already been processed in 2011 Debit 2011: jnls that had already been processed Depreciation expense Machinery: accumulated depreciation Depreciation on machinery: (C100 000 RV: 0) / 10 years x 1 (or see working) 10 000 10 000 Credit

2011: jnls that would now be required Depreciation expense 40 000 Machinery: accumulated depreciation 40 000 Change in estimate (CCM): Depreciation on machinery: New depr opening CA 70 000 closing CA 20 000 = 50 000 New depr: 50 000 Depr already processed: 10 000 (Acc depr should be R80 000 at end of 2011) SOLUTION TO EG 2 B: DISCLOSURE Notes to the financial statements 3. Profit before tax Profit before tax is stated after taking the following items into account: Depreciation of machinery - previous estimate - change in estimate 2011 50 000 10 000 40 000 2010 10 000 10 000 0

4. Change in accounting estimate The estimated useful life of machinery was changed from 10 years to 5 years. The (increase) / decrease relating to the change is as follows: - current years profits - future years profits 2011 40 000 (40 000)

Moodle - IAS 8 - part 1A - estimates - solutions to lecture eg's

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SOLUTION TO EG 3A: RE-ALLOCATION METHOD Reallocation method Cost Accum. depreciation: 31/12/20X3 Carrying amt: end 20X3

Calculations
Given (100 000 0) / 10 x 3yrs Allocate to is column

Was (a) 100 000 (30 000) 70 000

Is (b)

Difference (b) (a)

70 000

Less residual value Depreciable amount Remaining useful life

Depreciation: 2011 Carrying amt: end 2011 Depreciation - future Carrying amount: final

(10 3yrs) (5 3 yrs) (70 000 / 7 yrs) (70 000 / 2 yrs)

0 70 000 7 years
(10 000) 60 000 (60 000)

20 000 50 000 2 years

(25 000) 45 000 (25 000) (15 000) (15 000) 35 000 20 000

Extra depr (current) Less depr (future)

(60 000 0) (45 000 20000)

6 year
0

1 year
20 000

SOLUTION TO EG 3A: RE-ALLOCATION METHOD: JOURNALS Journals: depreciation had already been processed in 2011 Debit 2011: jnls that had already been processed Depreciation expense Machinery: accumulated depreciation Depreciation on machinery: (C100 000 RV: 0) / 10 years x 1 (or see working) 2011: jnls that would now be required Depreciation expense Machinery: accumulated depreciation Change in estimate (RAM): Depreciation on machinery: New depr: opening CA 70 000 closing CA 45 000 = 25 000 New depr: 25 000 Depr already processed: 10 000 = 15 000 SOLUTION TO EG 3A: RE-ALLOCATION METHOD: DISCLOSURE 3. Profit before tax Profit before tax is stated after taking the following items into account: 2011 C Depreciation of machinery 25 000 - previous estimate 10 000 - change in estimate 15 000 10 000 10 000 Credit

15 000 15 000

20X3 C 10 000 10 000 0

4. Change in Accounting Estimate The estimated useful life of machinery was changed from 10 years to 5 years and the residual value was changed from nil to C20 000. The (increase) / decrease in profits as a result of the change is as follows: 2011 - current years profits 15 000 - future years profits (35 000)

Moodle - IAS 8 - part 1A - estimates - solutions to lecture eg's

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SOLUTION TO EG 3B: CUMULATIVE CATCH-UP METHOD Cumulative catch-up Calculations Was Is method (a) (b) Cost Accum. deprec.: end 20X3 Carrying amt: end 20X3
Given (100 000 - 0) / 10 x 3 yrs (100 000-20 000) /5 x 3 yrs)

Difference (b) (a) (18 000) Extra depr

100 000 (30 000)

100 000 (48 000)

70 000

52 000

(18 000)

Residual value Depreciable amount Remaining useful life

Depreciation 2011

(10 3yrs) (5 3 yrs) (70 000 / 7 yrs) (32 000 / 2 yrs)

0 70 000 7 years
(10 000) 60 000 (60 000)

20 000 32 000 2 years

(16 000) 36 000 (16 000) (6 000) (24 000) 44 000 20 000 Extra depr

Carrying amount: end 2011 (60 000 0) Future depreciation Carrying amount: final

(36 000 20 000)

6 years
0

1 year
20 000

Less depr (future adj)

SOLUTION TO EG 3B: CUMULATIVE CATCH-UP METHOD: JOURNALS Journals: depreciation had already been processed in 2011 Debit 2011: jnls that had already been processed Depreciation expense Machinery: accumulated depreciation Depreciation on machinery: (C100 000 RV: 0) / 10 years x 1 (or see working) 2011: jnls that would now be required Depreciation expense Machinery: accumulated depreciation Change in estimate (CCM): Depreciation on machinery: New depr: opening CA 70 000 closing CA 36 000 = 34 000 New depr: 34 000 Depr already processed: 10 000 = 24 000 SOLUTION TO EG 3B: CUMULATIVE CATCH-UP METHOD: DISCLOSURE 3. Profit before tax Profit before tax is stated after taking the following items into account: 2011 Depreciation of machinery 34 000 - previous estimate 10 000 - change in estimate 24 000 10 000 10 000 Credit

24 000 24 000

2010 10 000 10 000 0

4. Change in Accounting Estimate The estimated useful life of machinery was changed from 10 years to 5 years and the residual value was changed from nil to C20 000. The (increase)/ decrease in profits caused by the change is as follows: 2011 - current years profits 24 000 - future years profits (44 000)

Moodle - IAS 8 - part 1A - estimates - solutions to lecture eg's

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