A company began trading on 1 January 2009, preparing its financial statements to 31
December each year.
As at 31 December 2011, the company adopted a new accounting policy with regard to the measurement of inventories. If the new policy had been applied in previous years, the company's inventory at 31 December 2009 would have been £150,000 higher than the amount originally calculated. Similarly, the inventory at 31 December 2010 would have been £400,000 higher than the amount originally calculated.
An extract from the draft statement of comprehensive income for the year to 31 December
2011 (before accounting retrospectively for the change in accounting policy) is as follows:
2011 2010
£000 £000
Profit before taxation …show more content…
4.3
If a change in accounting policy is caused by the initial application of an international standard or interpretation, the entity should disclose the title of that standard or interpretation. If a change in accounting policy is voluntary, the entity should disclose its reasons for making the change. In all cases, the entity should disclose the nature of the change and the amount of the adjustment made to each affected item in the financial statements.
4.4
(a) A material prior period error is a material omission or mis-statement occurring in an entity's financial statements for a prior period. Material prior period errors should be corrected retrospectively. This generally involves restating the comparative figures for the prior period in which the error occurred.
(b) The entity should disclose the nature of the prior period error. For each prior period presented, the entity should disclose the amount of the correction to each affected line item in the financial statements. The amount of the correction at the beginning of the earliest prior period presented should also be disclosed.
4.5
(a) 2011 2010
£000 £000
Profit before depreciation 2,510