Chapter 22 Solution Manual Kieso IFRS by

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CHAPTER 22
Accounting for Changes and Error Analysis
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Brief Concepts
Topics Questions Exercises Exercises Problems for Analysis
1. Differences between change in 2, 4, 6, 7, 8, 8 3 1, 2, 3, 4
principle, change in estimate, 9, 12, 13,
errors. 15, 21,
22, 23
2. Accounting changes:
a. Comprehensive. 3, 6, 7 1, 2, 4, 5
b. Changes in estimate, 8, 9 4, 5, 9 6, 7, 8, 9, 1, 2, 4, 1, 2, 3,
changes in depreciation 10, 11, 12, 6, 7 4, 5, 6
methods.
c. Changes in accounting 2, 10 1, 2, 10 1, 8, 13 3 1, 2
for long-term construction
contracts.
d. Change from FIFO 10 8, 14 5 3
to average cost.
e. Change from average cost 2, 11 3 2, 3, 5, 2 1, 2
to FIFO. 8, 14
f. Miscellaneous. 1, 3, 4, 5,8 8, 9, 10 1, 5
3. Correction of an error.
a. Comprehensive. 8, 14, 8, 9, 10 8, 15, 16, 3, 6, 7, 2, 3, 4
15,17 18, 19, 8, 9, 10
20, 21
b. Depreciation. 2, 18, 20 6, 7 9, 15, 1, 6, 8
17, 18
c. Inventory. 9, 16, 19 10 7, 17, 18 2, 10 1, 2
Copyright © 2011 John Wiley & Sons, Inc. Kieso Intermediate: IFRS Edition, Solutions Manual 22-1
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ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Brief
Learning Objectives Exercises Exercises Problems
1. Identify the two types of accounting changes.
2. Describe the accounting for changes 1

in accounting policies.
3. Understand how to account for retrospective 1, 2, 3, 1, 2, 3, 4, 5, 2, 3, 5

accounting changes. 9, 10 8, 13, 14
4. Understand how to account for impracticable
changes.
5. Describe the accounting for changes 4, 5, 9 6, 7, 8, 9, 1, 2, 3,

of estimates. 10, 11, 12 4, 6
6. Describe the accounting for correction of errors. 6, 7, 8, 10 7, 8, 9, 15, 1, 2, 3, 6,

16, 17, 18, 7, 8, 9, 10
19, 20, 21
7. Identify economic motives for changing

accounting policies.
8. Analyze the effect of errors. 18, 19, 20, 21 6, 7, 8,
9, 10
22-2 Copyright © 2011 John Wiley & Sons, Inc. Kieso Intermediate: IFRS Edition, Solutions Manual
ASSIGNMENT CHARACTERISTICS TABLE
Level of Time
Item Description Difficulty (minutes)
E22-1 Change in policy—long-term contracts. Moderate 10–15
E22-2 Change in policy—inventory methods. Moderate 10–15
E22-3 Accounting change. Difficult 25–30
E22-6 Accounting changes—depreciation. Difficult 30–35
E22-7 Change in estimate and error; financial statements. Moderate 25–30
E22-8 Accounting for accounting changes and errors. Simple 5–10
E22-9 Error and change in estimate—depreciation. Simple 15–20
E22-10 Depreciation changes. Moderate 20–25
E22-11 Change in estimate—depreciation. Simple 10–15
E22-12 Change in estimate—depreciation. Simple 20–25
E22-13 Change in policy—long-term contracts. Simple 10–15
E22-14 Various changes in policy—inventory methods. Moderate 20–25
E22-15 Error correction entries. Simple 15–20
E22-16 Error analysis and correcting entry. Simple 10–15
E22-17 Error analysis and correcting entry. Simple 10–15
E22-18 Error analysis. Moderate 25–30
E22-19 Error analysis and correcting entries. Simple 20–25
P22-1 Change in estimate and error correction. Moderate 30–35

P22-2 Comprehensive accounting change and error analysis problem. Complex 30–40
P22-3 Error corrections and accounting changes. Complex 30–40
P22-4 Accounting changes. Moderate 40–50
P22-5 Change in policy—inventory—periodic. Moderate 30–35
P22-6 Accounting changes and error analysis. Moderate 25–30
P22-7 Error corrections. Moderate 25–30
P22-8 Comprehensive error analysis. Difficult 30–35
P22-9 Error analysis. Moderate 20–25
P22-10 Error analysis and correcting entries. Complex 50–60
CA22-1 Analysis of various accounting changes and errors. Moderate 25–35

CA22-3 Analysis of three accounting changes and errors. Moderate 30–35
CA22-5 Change in policy, estimate. Moderate 20–30
CA22-6 Change in estimate, ethics. Moderate 20–30
ANSWERS TO QUESTIONS
1. The major reasons why companies change accounting policies are:

(1) Desire to show better profit picture.
(2) Desire to increase cash flows through reduction in income taxes.
(3) Requirement by International Accounting Standards Board to change accounting methods.
(4) Desire to follow industry practices.
(5) Desire to show a better measure of the company’s income.
2. (a) Change in accounting policy; retrospective application to prior period financial statements.
(b) Correction of an error and therefore prior period adjustment; adjust the beginning balance of
retained earnings.
(c) Increase income for litigation settlement.
(d) Change in accounting estimate; currently and prospectively. Part of operating section of
income statement.
(e) Reduction of accounts receivable and the allowance for doubtful accounts.
(f) Change in accounting policy; retrospective application to prior period financial statements.
3. The three approaches suggested for reporting changes in accounting policies are:
(a) Currently—the cumulative effect of the change is reported in the current year’s income as
a special item.
(b) Retrospectively—the cumulative effect of the change is reported as an adjustment to retained
earnings. The prior year’s statements are changed on a basis consistent with the newly
adopted policy.
(c) Prospectively—no adjustment is made for the cumulative effect of the change. Previously
reported results remain unchanged. The change shall be accounted for in the period of the
change and in subsequent periods if the change affects future periods.
4. The IASB believes that the retrospective approach provides financial statement users the most
useful information. Under this approach, the prior statements are changed on a basis consistent
with the newly adopted standard; any cumulative effect of the change for prior periods is recorded
as an adjustment to the beginning balance of retained earnings of the earliest period reported.
5. The indirect effect of a change in accounting policy reflects any changes in current or future cash
flows resulting from a change in accounting policy that is applied retrospectively. An example is
the change in payments to a profit-sharing plan that is based on reported net income. Indirect
effects are not included in the retrospective application, but instead are reported in the period in
which the accounting change occurs (current period).
6. A change in an estimate is simply a change in the way an individual perceives the realizability of
an asset or liability. Examples of changes in estimate are: (1) change in the realizability of trade
receivables, (2) revisions of estimated lives, (3) changes in estimates of warranty costs, and
(4) change in estimate of deferred charges or credits.
7. This is an example of a situation in which it is difficult to differentiate between a change in account-

ing policy and a change in estimate. In such a situation, the change should be considered a
change in estimate, and accordingly, should be handled currently and prospectively. Thus, all
costs presently capitalized and viewed as providing doubtful future values should be expensed
immediately, and costs currently incurred should also be expensed immediately.
8. (a) Charge to expense—possibly separately disclosed.

(b) Change in estimate—account for currently and prospectively.
(c) Charge to expense—possibly separately disclosed.
(d) Correction of an error and reported as a prior period adjustment—adjust the beginning balance
of retained earnings.
Questions Chapter 22 (Continued)
(e) Change in accounting policy—retrospective application to all affected prior-period financial

statements.
(f) Change in accounting estimate—currently and prospectively.
9. This change is to be handled as a correction of an error. As such, the portion of the change
attributable to prior periods ($23,000) should be reported as an adjustment to the beginning
balance of retained earnings in the 2010 financial statements. If statements for previous years
are presented for comparative purposes, these statements should be restated to correct for the
error. The remainder of the inventory value ($29,000) should be reported in the 2010 statements
as a reduction of materials cost.
10. Preferability is a difficult concept to apply. The problem is that there are no basic objectives to
indicate which is the most preferable method, assuming a selection between two generally accepted
practices is possible, such as cost-recovery and percentage-of-completion. If an IASB standard
creates a new policy or expresses preference for or rejects a specific accounting policy, a change
is considered clearly acceptable. A more appropriate matching of revenues and expenses is
often given as the justification for a change in accounting policy.
11. When a company changes to the new policy, the base-year amounts for all subsequent
calculations under the new method is the beginning balance in the year the policy is adopted.
This assumes that prior years’ income is not changed because it would be too impractical to do so.
12. Larger companies that are more politically visible may seek to report low income numbers to
avoid the scrutiny of regulators. The larger the company the more likely it is to adopt income-
decreasing approaches in selecting accounting methods.
13. Some of the key reasons for changing accounting policies are: (1) political costs, (2) capital
structure, (3) bonus payments, and (4) smoothing of earnings.
14. Counterbalancing errors are errors that will be offset or corrected over two periods. Non-
counterbalancing errors are errors that are not offset in the next accounting period. An example
of a counterbalancing error is the failure to record accrued wages or prepaid expenses. Failure to
capitalize equipment and record depreciation is an example of a non-counterbalancing error.
15. A correction of an error in previously issued financial statements should be handled as a prior-
period adjustment. Thus, such an error should be reported in the year that it is discovered as an
adjustment to the beginning balance of retained earnings. And, if comparative statements are
presented, the prior periods affected by the error should be restated. The disclosures need not be
repeated in the financial statements of subsequent periods.
As an illustration, assume that credit sales of $40,000 were inadvertently overlooked at the end of
2010. When the error was discovered in a subsequent period, the appropriate entry to record the
correction of the error would have been (ignoring income tax effects):
Accounts Receivable ................................................................................... 40,000
Retained Earnings ............................................................................... 40,000
16. This change represents a change from an accounting policy that is not generally accepted to an
accounting policy that is acceptable. As such, this change should be handled as a correction of
an error. Thus, in the 2010 statements, the cumulative effect of the change should be reported as
an adjustment to the beginning balance of retained earnings. If 2009 statements are presented
for comparative purposes, these statements should be restated to correct for the accounting error.
Questions Chapter 22 (Continued)
17. Retained earnings is correctly stated at December 31, 2012. Failure to accrue salaries in earlier
years is a counterbalancing error that has no effect on 2012 ending retained earnings.
18. December 31, 2011

Machinery .................................................................................................... 6,000
Accumulated Depreciation—Machinery ............................................... 600
Retained Earnings ............................................................................... 5,400
(To correct for the error of expensing installation costs
on machinery acquired in January, 2010)
Depreciation Expense [(£36,000 – £3,600) ÷ 20] ........................................ 1,620

Accumulated Depreciation—Machinery ............................................... 1,620
(To record depreciation on machinery for 2011 based
on a 20-year useful life)
19. This error has no effect on net income because both purchases and inventory were understated.
The entry to correct for this error, assuming a periodic inventory system, is:
Purchases .................................................................................................... 130,000
Accounts Payable ................................................................................ 130,000
20. This error increases net income by $2,400 in 2010. Depreciation should have been charged to
net income. The entry to correct for this error is as follows:
Depreciation Expense .................................................................................. 2,400

Accumulated Depreciation—Equipment .............................................. 2,400
21. U.S. GAAP absolutely requires restatement of prior financial statements for all accounting errors
while IFRS allows for some exceptions. Under IFRS, the impracticality exception applies to
correction of errors.
22. U.S. GAAP has detailed guidance on the accounting and reporting of indirect effects. U.S. GAAP
requires that indirect effects do not change prior period amounts.
23. There is a difference between U.S. GAAP and IFRS related to how the investor evaluates the
accounting policies of the investee. For example, if the investee uses an inventory method
different from the investor’s method, the investor must conform the accounting method of the
investee to its own method under IFRS. This involves adjusting the investee’s net income so it is
reported on the same basis as the investor’s income.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 22-1
Construction in Process ($120,000 – $80,000) .......... 40,000

Deferred Tax Liability
[($120,000 – $80,000) X 35%] ........................... 14,000
Retained Earnings ............................................... 26,000
BRIEF EXERCISE 22-2
Difference in profit-sharing expense—prior years

Pre-tax income—percentage-of-completion ............. $120,000
Pre-tax income—cost-recovery.................................. 80,000
$ 40,000
X 1%
Indirect effect ............................................ $ 400
The indirect effect from prior years will be reported as a profit-sharing expense
for year 2010.
BRIEF EXERCISE 22-3
Inventory ...................................................................... 1,200,000

Deferred Tax Liability (€1,200,000 X 40%).......... 480,000
Retained Earnings ............................................... 720,000
BRIEF EXERCISE 22-4
Cost of depreciable assets ......................................... $250,000

Accumulated depreciation.......................................... (90,000)
Carrying value at January 1, 2010.............................. 160,000
Residual value ............................................................. (40,000)
Depreciable base ......................................................... $120,000
Depreciation in 2010 = $120,000 ÷ 8 = $15,000.
Depreciation Expense .................................................. 15,000

Accumulated Depreciation .................................. 15,000
BRIEF EXERCISE 22-5
Depreciation Expense ........................................................ 24,000

Accumulated Depreciation ......................................... 24,000
 £58,000* – £10,000 
 = £24,000
 4–2 
*Book value before change

Cost .............................................................................. £74,000
Accumulated depreciation ......................................... 16,000**
£58,000
**[(£74,000 – £18,000) ÷ 7] X 2
BRIEF EXERCISE 22-6
Equipment ........................................................................... 50,000

Accumulated Depreciation ......................................... 20,000
Deferred Tax Liability .................................................. 9,000
Retained Earnings ....................................................... 21,000
($20,000 = $50,000 X 2/5; $9,000 = $30,000 X 30%)
BRIEF EXERCISE 22-7
CHENG COMPANY
Retained Earnings Statement
For the Year Ended December 31, 2010
Retained earnings, January 1, as previously reported........ ¥20,000,000

Less: Correction of depreciation error, net of tax .......... 2,400,000*
Retained earnings, January 1, as adjusted ...................... 17,600,000
Add: Net income ............................................................... 9,000,000
Less: Dividends ................................................................. 2,500,000
Retained earnings, December 31 ...................................... ¥24,100,000
*¥4,000,000 X (1 – .4)
BRIEF EXERCISE 22-8
2010 2011
a. Overstated Overstated
b. Overstated Understated
c. Understated Overstated
d. Overstated Understated
e. No effect Overstated
BRIEF EXERCISE 22-9
1. The change to a three-year remaining life for the purpose of computing

depreciation on production equipment is a change in estimate due to a
change in conditions.
2. This is an expense classification change arising from a change in the

use of the building for a different purpose. Thus, it is not a change in
policy, a change in estimate, or an error.
3. The change to expensing preproduction costs (writing the costs off in

one year as opposed to several years) is a change in estimate due to a
change in conditions.
BRIEF EXERCISE 22-10
1. Both FIFO and average cost are generally accepted accounting

policies; thus, this item is a change in accounting policy.
2. This oversight is a mistake that should be corrected. Such a correction

is considered a change due to error.
3. Both the cost-recovery method and the percentage-of-completion

method are generally accepted policies; thus, such a change is a
change in accounting policy.
SOLUTIONS TO EXERCISES
EXERCISE 22-1 (10–15 minutes)
(a) The net income to be reported in 2010, using the retrospective approach,
would be computed as follows:
Income before income tax ............................ $700,000
Income tax (35% X $700,000) ........................ 245,000
Net income ..................................................... $455,000
(b) Construction in Process ....................................... 170,000

Deferred Tax Liability ($170,000 X 35%) ........ 59,500
Retained Earnings ......................................... 110,500*
*($170,000 X 65% = $110,500)
(a) Inventory ................................................................ 11,000*

Retained Earnings ......................................... 11,000
*($19,000 + $21,000 + $25,000) –

($16,000 + $18,000 + $20,000)
(b) Net Income (FIFO) 2008 $19,000

2009 21,000
2010 25,000
(a) RAMIREZ CO.

Income Statement
For the Year Ended December 31
Average Cost
2008 2009 2010
Sales .......................................................... $4,000 $4,000 $4,000
Cost of goods sold ................................... 800 1,000 1,130
Operating expenses ................................. 1,000 1,000 1,000
Net income ......................................... $2,200 $2,000 $1,870
Income Statement
FIFO
2008 2009 2010
Sales .......................................................... $4,000 $4,000 $4,000
Cost of goods sold ................................... 820 940 1,100
Operating expenses ................................. 1,000 1,000 1,000
Net income ......................................... $2,180 $2,060 $1,900
(b) RAMIREZ CO.

Income Statement
2010 2009
As adjusted (Note A)
Sales .......................................................... $4,000 $4,000
Cost of goods sold ................................... 1,100 940
Operating expenses ................................. 1,000 1,000
Net income ......................................... $1,900 $2,060
EXERCISE 22-3 (Continued)
(c) Note A:
Change in Method of Accounting for Inventory Valuation
On January 1, 2010, Ramirez elected to change its method of valuing

its inventory to the FIFO method, whereas in all prior years inventory
was valued using the Average Cost method. The new method of
accounting for inventory was adopted because it better reflects the
current cost of the inventory on the statement of financial position and
comparative financial statements of prior years have been adjusted to
apply the new method retrospectively. The following financial statement
line items for fiscal years 2010 and 2009 were affected by the change in
accounting policy.
2010 2009
Statement of Financial
Position Average FIFO Difference Average FIFO Difference
Inventory $ 320 $ 390 $70 $ 200 $ 240 $40
Retained Earnings 6,070 6,140 70 4,200 4,240 40
Income Statement
Cost of Goods Sold $1,130 $1,100 $30 $1,000 $ 940 $60

Net Income 1,870 1,900 30 2,000 2,060 60
Statement of Cash Flows

(no effect)
(d) Retained earnings statements after retrospective application.
2010 2009
Retained earnings, January 1, as reported $2,200
Less: Adjustment for cumulative effect
of applying new accounting
method (FIFO) 20
Retained earnings, January 1, as adjusted $4,240 2,180
Net Income 1,900 2,060
Retained earnings, December 31 $6,140 $4,240
2008
(a) Retained earnings, January 1, as reported ................. £160,000
Cumulative effect of change in accounting
policy to average cost ............................................... (13,000)*
Retained earnings, January 1, as adjusted ................. £147,000
*[£8,000 (2006) + £5,000 (2007)]
2011
(b) Retained earnings, January 1, as reported ................. £590,000
*[£8,000 (2006) + £5,000 (2007) + £10,000

(2008) – £10,000 (2009) + £7,000 (2010)]
2012
(c) Retained earnings, January 1, as reported ................. £780,000
*[£20,000 at 12/31/2010 – £5,000 (2011)]
2009 2010 2011

(d) Net Income ............................. £130,000 £293,000 £310,000
(a) CARLTON COMPANY

Income Statement
For the Year Ended
2010 2009
Sales ................................................................. $3,000 $3,000
Cost of goods sold .......................................... 1,100 940
Operating expenses ........................................ 1,000 1,000
Income before profit sharing ................... $ 900 $1,060
Profit sharing expense .................................... 48 50
Net income................................................. $ 852 $1,010
Carlton Company should report $50 as the profit sharing expense in

2009, even though the profit sharing expense would be $53 if FIFO had
been used in 2009.
(b) The profit sharing expense reflects an indirect effect of the change in
accounting policy. Under IFRS, indirect effects from periods before the
change are recorded in the year of the change. In this case, profit
sharing expense recorded in 2010 is composed of:
$900 X 5% = $45 (2010 under FIFO)

$ 60 X 5% = 3 (difference in profit sharing for 2009)
$48 (profit sharing expense for FIFO in 2010)
(c) Retained Earnings Statement

2010
Retained earnings, January 1, as reported .................... $8,000
Cumulative effect of change to FIFO ($1,007 – $950) ...... 57
Retained earnings, January 1, as adjusted .................... 8,057
Add: Net Income ............................................................... 855*
Deduct: Dividends ............................................................ 2,500
Retained earnings, December 31 .................................... $6,412
*The difference in net income for 2010 compared to (a) is due to the $3
indirect effect of profit sharing expense.
(a) Depreciation to date on equipment
Sum-of-the-years‘-digits depreciation
2007 (5/15 X $450,000) $150,000
2008 (4/15 X $450,000) 120,000
2009 (3/15 X $450,000) 90,000
$360,000
Cost of equipment .................................................. $465,000

Depreciation to date ............................................... (360,000)
Book value (December 31, 2009) ........................... $105,000
Book value – Residual value = Depreciable cost

$105,000 – $15,000 = $90,000
Depreciation for 2010: $90,000/2 = $45,000
Depreciation Expense ............................................ 45,000

Accumulated Depreciation—Equipment ....... 45,000
(b) Depreciation to date on building
$780,000/30 years = $26,000 per year

$26,000 X 3 = $78,000 depreciation to date
Cost of building ...................................................... $780,000

Depreciation to date ............................................... (78,000)
Book value (December 31, 2009) ........................... $702,000
Depreciation for 2010: $702,000/(40 – 3) = $18,973 (rounded)

Accumulated Depreciation—Buildings ......... 18,973
Change from sum-of-the-years-digits to straight-line
Cost of depreciable assets .................................. $90,000

Depreciation in 2009 ($90,000 X 4/10)................. (36,000)
Book value at December 31, 2009....................... $54,000
Depreciation for 2010 using straight-line depreciation
Book value at December 31, 2009....................... $54,000

Estimated useful life ............................................ ÷ 3 years
Depreciation for 2010 ($54,000 ÷ 3) .................... $18,000
PANNEBECKER INC.
Retained Earnings Statement
For the Year Ended
2010 2009
Retained earnings, January 1, unadjusted ........... $125,000
Less: Correction of error for inventory
overstatement .............................................. (20,000)
Retained earnings, January 1, adjusted ............... 105,000 $ 72,000
Add: Net income ................................................... 81,000 58,000
Less: Dividends ..................................................... 30,000 25,000
Retained earnings, December 31 .......................... $156,000 $105,000
Note to instructor:
1. 2009 Cost of sales increased $20,000; 2010 cost of sales decreased

$20,000. As a result, net income for 2009 is overstated $20,000 and
net income for 2010 is understated $20,000 as a result of the
inventory error.
2. 2009 expenses remained unchanged.
3. 2010 expenses decreased $9,000 ($27,000 – $18,000). Net income

in 2010 is therefore $81,000 ($52,000 + $20,000 + $9,000).
4. Additional disclosures would be as necessitated as indicated in

the chapter.
5. Another acceptable presentation for the retained earnings statement

for 2010 is:
Retained earnings, January 1, as reported .......... $125,000

Prior period adjustment—inventory error ........... (20,000)
Retained earnings, January 1, as adjusted ......... 105,000
Add: Net Income .................................................. 81,000
Less: Dividends..................................................... 30,000
Retained earnings, December 31 .......................... $156,000
1. b. 6. b.
2. b. 7. a.
3. a. 8. b.
4. b. 9. a.
5. a.
December 31, 2010

Retained Earnings (W44,000,000 X 9/55) ...................... 7,200,000
Accumulated Depreciation—Machinery ............... 7,200,000
(To correct for the omission of depreciation
expense in 2008)
Cost of Machine W44,000,000

Less: Depreciation prior to 2010
2007 (W44,000,000 X 10/55) W8,000,000
2008 (W44,000,000 X 9/55) 7,200,000
2009 (W44,000,000 X 8/55) 6,400,000 21,600,000
Book Value at January 1, 2010 W22,400,000
Depreciation for 2010: W22,400,000 ÷ 7 = W3,200,000
Depreciation Expense .................................................... 3,200,000

Accumulated Depreciation—Machinery ............... 3,200,000
(To record depreciation expense for 2010)
(a) Computation of depreciation for 2010:

Cost of building £1,200,000
2006 (£1,200,000 – £ 0) X .05* £60,000
2007 (£1,200,000 – £ 60,000) X .05 57,000
2008 (£1,200,000 – £117,000) X .05 54,150
2009 (£1,200,000 – £171,150) X .05 51,443 222,593
Book value, January 1, 2010 £ 977,407
*(1 ÷ 40) X 2
Depreciation expense for 2010: £25,761 [(£977,407 – £50,000) ÷ 36]
Depreciation Expense ............................................. 25,761

Accumulated Depreciation—Building ........... 25,761
(b) Computation of 2010 depreciation expense on the equipment:
Cost of equipment ................................................... £130,000

Accumulated depreciation
[(£130,000 – £10,000) ÷ 12] X 4 years ................. (40,000)
Book value, January 1, 2010 .................................. £ 90,000
£90,000 – £5,000 £85,000

2010 Depreciation expense: = = £17,000
(9 – 4) 5
(a) No entry necessary. Changes in estimates are treated prospectively.
(b) Depreciation Expense ................................................ 27,000*

Accumulated Depreciation—Equipment .......... 27,000
*Original cost $710,000

Accumulated depreciation
[($710,000 – $10,000) ÷ 10] X 7 (490,000)
Book value (1/1/11) 220,000
Estimated residual value (4,000)
Remaining depreciable basis 216,000
Remaining useful life
(15 years – 7 years) ÷ 8
Depreciation expense—2010 $ 27,000
(a) Cost of plant assets $2,400,000

2007 ($2,400,000 X .25) $600,000
2008 ($1,800,000 X .25) 450,000
2009 ($1,350,000 X .25) 337,500 1,387,500
Book value at January 1, 2010 $1,012,500
2010 Depreciation: ($1,012,500 – $100,000) ÷ 5 = $182,500

Accumulated Depreciation—Plant Assets .... 182,500
2010 2009
(b) Income before depreciation expense $300,000 $370,000
Depreciation expense 182,500 337,500
Net income $117,500 $ 32,500
(a) The net income to be reported in 2010, using the retrospective approach,
would be computed as follows:
Income before income tax .............................. $900,000
Income tax (40% X $900,000) ......................... 360,000
Net income ....................................................... $540,000
(b) Construction in Process ........................................ 250,000

Deferred Tax Liability (40% X $250,000) ........ 100,000
Retained Earnings........................................... 150,000*
*($250,000 X 60% = $150,000)
(a) Retained Earnings ...................................................... 10,000

Inventory ............................................................. 10,000*
*2008 € 3,000 (€26,000 – €23,000)

*2009 5,000 (€30,000 – €25,000)
*2010 2,000 (€29,000 – €27,000)
€10,000
2011 2010 2009 2008

Net income (€30,000 €27,000 €25,000 €23,000
(b) Inventory ..................................................................... 10,000

Retained Earnings .............................................. 10,000*
*2008 € 3,000 (€26,000 – €23,000)

*2009 5,000 (€30,000 – €25,000)
*2010 2,000 (€29,000 – €27,000)
€10,000
2011 2010 2009 2008

Net income (€34,000 €29,000 €30,000 €26,000
1. Accumulated Depreciation—Machinery........ 30,600

Depreciation Expense ............................. 10,200
Retained Earnings ................................... 20,400
2008–2009 2010
Depreciation taken .......................................... $204,000* $102,000
Depreciation (correct)..................................... * (183,600) (91,800)
*$ 20,400 $ 10,200
*$510,000 X 1/5 X 2
2. Retained Earnings ........................................... 45,000

Sales Salaries Expense ........................... 45,000
3. No entry necessary.
4. Amortization Expense—Copyright......................... 2,500
Retained Earnings ................................................... 5,000
Copyright .......................................................... 7,500
($50,000 ÷ 20 = $2,500;
($2,500 X 2 = $5,000)
5. Loss on Write-down of Inventories
(or Cost of Goods Sold) ....................................... 87,000
Retained Earnings............................................ 87,000
1. Wages Expense ...................................................... 3,400

Wages Payable ................................................ 3,400
2. Vacation Wages Expense ...................................... 31,100
Vacation Wages Payable ................................ 31,100
3. Prepaid Insurance ($3,300 X 10/12) ....................... 2,750
Insurance Expense ......................................... 2,750
4. Sales Revenue
[$1,908,000 ÷ (1.00 + .06)] X 6% ......................... 108,000
Sales Tax Payable ........................................... 108,000
Sales Tax Payable ................................................... 103,400
Sales Tax Expense .......................................... 103,400

Retained Earnings ........................................................... 33,700
Inventory................................................................... 14,200
Accumulated Depreciation—Equipment
($38,500 – $19,000) .............................................. 19,500
Computations:
Effect on retained earnings
over (under) statement
Overstatement of 2011 ending inventory ($14,200
Overstatement of 2010 depreciation ( (19,000)
Understatement of 2011 depreciation ( 38,500
Total effect of errors on retained earnings ($33,700
Note: The understatement of inventory in 2010 was a self-correcting error at
the end of 2011.
(a) Effect of errors on 2010 net income: £21,700 overstatement
Computations:
Effect on 2010 net income
Understatement of 2009 ending inventory (£ 9,600
Overstatement of 2010 ending inventory 7,100
Expensing of insurance premium in 2009
(£60,000 ÷ 3) 20,000
Failure to record sale of fully depreciated (
machine in 2010 (15,000)
Total effect of errors on net income
(overstated) £21,700
(b) Effect of errors on working capital: £27,900 understatement
Computations:
Effect on working capital
Overstatement of 2010 ending inventory £( 7,100
Expensing of insurance premium in 2009
(prepaid insurance) (20,000)
Sale of fully depreciated machine
unrecorded (cash) (15,000)
Total effect on working capital (understated) £(27,900)
(c) Effect of errors on retained earnings: £25,600 understatement
Computations:
Effect on retained earnings
Overstatement of 2010 ending inventory £( 7,100
Understatement of depreciation expense
in 2009 2,300
Expensing of insurance premium in 2009 (20,000)
Failure to record sale of fully depreciated
machine in 2010 (15,000)
Total effect on retained earnings
(understated) £(25,600)
(a) 1. Supplies Expense ($2,500 – $1,100) ................... 1,400

Supplies on Hand ......................................... 1,400
2. Salary and Wages Expense

($4,400 – $1,500) .............................................. 2,900
Accrued Salaries and Wages ...................... 2,900
3. Interest Revenue ($5,100 – $4,350)..................... 750

Interest Receivable ...................................... 750
4. Insurance Expense ($90,000 – $65,000) ............ 25,000

Prepaid Insurance ....................................... 25,000
5. Rental Income ($24,000 ÷ 2) ............................... 12,000

Unearned Rent............................................. 12,000
6. Depreciation Expense ($50,000 – $5,000) ......... 45,000

Accumulated Depreciation ......................... 45,000
7. Retained Earnings .............................................. 7,200

(b) 1. Retained Earnings .............................................. 1,400

Supplies on Hand ........................................ 1,400

Accrued Salaries and Wages ..................... 2,900
3. Retained Earnings .............................................. 750

Interest Receivable ..................................... 750

Prepaid Insurance ....................................... 25,000

Unearned Rent............................................. 12,000

7. Same as in (a).
2010 2011
Income before tax $101,000 $77,400
Corrections:
Sales erroneously included in 2010 income (38,200) 38,200
Understatement of 2010 ending inventory 8,640 (8,640)
Adjustment to bond interest expense* (1,800) (1,926)
Repairs erroneously charged to the
Equipment account (8,000) (9,400)
Depreciation recorded on improperly
capitalized repairs (10%)*** 800 1,740
Corrected income before tax $ 62,440 $97,374
*Bond interest expense for 2010 and 2011 was computed as follows:
Book Value of Bonds Stated Interest Effective Interest

2010 $240,000 $15,000 $16,800**
2011 241,800 15,000 16,926*
**$240,000 X 7%
Difference between effective interest at 7% and stated interest (6%):

2010: $1,800
2011: 1,926
***Erroneous depreciation taken in 2011:

on 2010 addition ($8,000 ÷ 10) .......................................... $ 800
on 2011 addition ($9,400 ÷ 10) .......................................... 940
Total excess depreciation 2011 ............................................ $1,740
2010 2011
Item Over- Under- No Over- Under- No
statement statement Effect statement statement Effect
(1) X X
(2) X X
(3) X X
(4) X X
(5) X X
TIME AND PURPOSE OF PROBLEMS
Problem 22-1 (Time 30–35 minutes)

Purpose—to provide a problem that requires the student to: (1) account for a change in estimate,
(2) record a correction of an error, and (3) account for a change in accounting policy. The student is
also required to compute corrected/adjusted net income amounts.

Purpose—to develop an understanding of the way in which accounting changes and error corrections
are handled in accounting records. The problem presents descriptions of various situations for which
the student is required to indicate the correct accounting treatment and to prepare comparative income
statements for a four-year period.

Purpose—to provide a problem that requires the student to: (1) prepare correcting entries for two years’
unrecorded sales commissions, (2) three years’ inventory errors, and (3) prepare entries for two different
accounting changes.

Purpose—to allow the student to see the impact of accounting changes on income and to examine an
ethical situation related to the motivation for change.

Purpose—to develop an understanding of the impact which a change in the method of inventory pricing
(from FIFO to average cost) has on the financial statements during a five-year period. The student
is required to prepare a comparative statement of income and retained earnings for the five years
assuming the change in inventory pricing with an indication of the effects on net income and earnings
per share for the years involved.

Purpose—to develop an understanding of the journal entries and the reporting which are necessitated
by an accounting change or correction of an error. The student is required to prepare the entries to
reflect such changes or errors and the comparative income statements and retained earnings state-
ments for a two-year period.

Purpose—to provide a problem that requires the student to analyze ten transactions and to prepare
adjusting or correcting entries for these transactions.

Purpose—to help a student understand the effect of errors on income and retained earnings. The
student must analyze the effects of errors on the current year’s net income and on the next year’s
ending retained earnings balance.

Purpose—to develop an understanding of the effect that errors have on the financial statements. The
student is required to prepare a schedule portraying the corrected net income for the years involved
with this error analysis.
Time and Purpose of Problems (Continued)

Purpose—to develop an understanding of the correcting entries and income statement adjustments that
are required for changes in accounting policies and accounting errors. This comprehensive problem
involves many different concepts such as consignment sales, bonus computations, warranty costs, and
bank funding reserves. The student is required to prepare the necessary journal entries to correct the
accounting records and a schedule showing the revised income before taxes for each of the three
years involved.
SOLUTIONS TO PROBLEMS
PROBLEM 22-1
(a) 1. Cost of equipment ................................................. $85,000

Less: Residual value ............................................. 5,000
Depreciable cost.................................................... $80,000
Depreciation to 2010
2007 ($80,000/10) ........................................... $ 8,000
2008 ($80,000/10) ........................................... 8,000
2009 ($80,000/10) ........................................... 8,000
$24,000
Depreciation in 2010
Cost of equipment ......................................... $85,000
Less: Depreciation to 2010 .......................... 24,000
Book value (January 1, 2010) ....................... 61,000
Less: Residual value .................................... 3,000
Depreciable cost ............................................ $58,000
$58,000/4 = $14,500
Depreciation Expense ........................................... 14,500

Accumulated Depreciation—Equipment ..... 14,500
2. Cost of Building..................................................... $300,000

Less: Depreciation to 2010
2008 ............................................................. 60,000
2009 ............................................................. 48,000
Book value (January 1, 2010) .................... $192,000
Less: Residual value ................................ 30,000
Depreciable cost ........................................ $162,000
($162,000/8) = $20,250
Depreciation Expense ........................................... 20,250

Accumulated Depreciation—Building ......... 20,250
PROBLEM 22-1 (Continued)
3. Depreciation Expense ($120,000 – $16,000) ÷ 8 ..... 13,000

Accumulated Depreciation—Machine ............. 13,000
Accumulated Depreciation—Machine..................... 3,000
Retained Earnings ............................................. 3,000
Depreciation recorded in 2008:

1
($120,000 ÷ 8) X = $7,500
2
Depreciation that should be recorded in 2008:
1
([$120,000 – $16,000] ÷ 8) X = 6,500
2
Depreciation recorded in 2009:
($120,000 ÷ 8) = $15,000
Depreciation that should be recorded in 2009:
($120,000 – $16,000) ÷ 8 = $13,000
Depreciation Depreciation that

taken should be taken Differences
2008 $ 7,500 $ 6,500 $1,000
2009 15,000 13,000 2,000
$22,500 $19,500 $3,000
(b) HOLTZMAN COMPANY

Comparative Income Statements
For the Years 2010 and 2009
2010 2009
Income before depreciation expense .................... $300,000 $310,000
Depreciation expense* ............................................ 47,750 69,000
Net income ............................................................... $252,250 $241,000
*Depreciation Expense 2010 2009

Equipment ......................................................... $14,500 $ 8,000
Building ............................................................. 20,250 48,000
Machine ............................................................. 13,000 13,000
$47,750 $69,000
PROBLEM 22-2
(a) 1. Bad debt expense for 2008 should not have been reduced by
€10,000. A change in the experience rate is considered a change in
estimate, which should be handled prospectively.
2. A change from Average Cost to FIFO is considered a change in

accounting policy, which must be handled retrospectively.
3. (a) The inventory error in 2010 is a prior period adjustment and

the 2010 and 2011 financial statements should be restated.
(b) The lawsuit settlement is correctly treated.
(b) BOTTICELLI INC.

Comparative Income Statements
For the Years 2008 through 2011
2008 2009 2010 2011
Net income (see below) €145,000 €165,000 €201,000 €274,000
2008 2009 2010 2011

Net income (unadjusted) €140,000 €160,000 €205,000 €276,000
1. Bad debt expense
adjustment (10,000)
2. Inventory adjustment
(FIFO) 15,000 5,000 10,000 (16,000)
3. Inventory
overstatement (14,000) 14,000
Net income (adjusted) €145,000 €165,000* €201,000 €274,000
PROBLEM 22-3
1. Retained Earnings ..................................................... 3,500

Sales Commissions Payable............................. 2,500
Sales Commissions Expense ........................... 1,000
2. Cost of Goods Sold ($19,000 + $6,700) .................... 25,700

Retained Earnings.............................................. 19,000
Inventory ............................................................. 6,700
Income Overstated (Understated)

2008 2009 2010
Beginning inventory $ 16,000 $19,000
Ending inventory $(16,000) (19,000) 6,700
$(16,000) $ (3,000) $25,700
3. Accumulated Depreciation—
Equipment ............................................... 4,800
Depreciation Expense........................ 4,800*
*Equipment cost ........................................ $100,000

Depreciation before 2010 ......................... (36,000)
Book value ................................................ $ 64,000
Depreciation to be taken ($64,000/8) ...... $ 8,000

Depreciation recorded ............................. (12,800)
Difference .................................................. $ (4,800)
4. Construction in Process ........................... 45,000

Deferred Tax Liability......................... 18,000*
Retained Earnings.............................. 27,000
*($150,000 – $105,000) X 40%
PROBLEM 22-4
(a) ASTON CORPORATION

Projected Income Statement
For the Year Ended December 31, 2010
Sales ...................................................... £29,000,000

Cost of goods sold ............................... £14,000,000
a
Depreciation expense .......................... 1,600,000
Operating expenses ............................. 6,400,000 22,000,000
Income before income taxes ............... £ 7,000,000
b
Unrealized holding gain ....................... 1,000,000
Income before taxes and bonus ......... £ 8,000,000
President‘s bonus ................................ 1,000,000
Income before income taxes ............... £ 7,000,000
Income taxes
Current........................................... £ 3,000,000
c
Deferred ......................................... 500,000 3,500,000
Net income ............................................ £ 3,500,000
Conditions met:
1. Net income before taxes and bonus > £7,000,000.
2. Payable for income taxes does not exceed £3,000,000.
a
Depreciation for the current year includes £600,000 for the old equip-
ment and £2,000,000 for the robotic equipment. If the robotic equipment
is changed to straight-line, its depreciation is only £1,000,000 and the
total is £1,600,000.
b
By urging the Board of Directors to change the classification of
Investments A and D to trading investments, income is increased by a
£1,000,000 recognition of a holding gain.
c
The unrealized holding gain is not currently taxable until the invest-
ments are sold.
(b) Students‘ answers will vary.

There is nothing unethical about changing the first-year election of
depreciation back to the straight-line method provided that it meets with
the approval of appropriate corporate decision makers. Considering the
immediate needs for cash of £1,000,000 for the president‘s bonus and
£3,000,000 for income taxes, there may be a need to sell some of the
invesments. Therefore, the transfer of £3,000,000 of held-for-collection
investments to trading investments may also be appropriate.
It is naive to believe that corporate officers do no planning for year-end

(or interim) financial statements. The slippery slope arises with manipula-
tion of financial statements. The investment reclassification for the
selected investments clearly manipulates the income to the benefit of the
president. While legal and within IFRS guidelines, the ethics of this
situation are borderline. Any auditor would automatically bring this
transaction to the attention of the board of directors.
Some stakeholders and their interests are:
Stakeholder Interests
President Personal gain of £1,000,000 bonus.
CFO Placed in ethical dilemma between the interests

of the president and the corporation.
Board of Directors May be subject to the manipulations of the CEO

for his personal gain.
Shareholders Increased income from higher (paper) income

may increase demand for dividends. Also, paying a
bonus may decrease cash available for dividends.
Employees President takes over 25% of net income for

himself. This could have been used to start a
pension plan for all of the employees.
Creditors The increased income represents a 17% inflation of

the true net income of the corporation. This may
lead to a missrepresentation of creditworthiness.
PROBLEM 22-5
UTRILLO INSTRUMENT COMPANY

Statement of Income and Retained Earnings
For the Years Ended May 31
(Amounts in millions)
2006 2007 2008 2009 2010
Sales—net ¥13,964 ¥15,506 ¥16,673 ¥18,221 ¥18,898
Cost of goods sold
Beginning inventory 1,010 1,124 1,101 1,270 1,500
Purchases 13,000 13,900 15,000 15,900 17,100
Ending inventory (1,124) (1,101) (1,270) (1,500) (1,720)
Total 12,886 13,923 14,831 15,670 16,880
Gross profit 1,078 1,583 1,842 2,551 2,018
Administrative expenses 700 763 832 907 989
Income before taxes 378 820 1,010 1,644 1,029
Income taxes (50%) 189 410 505 822 515
Net income 189 410 505 822 514
Retained earnings—beginning:
As originally reported 1,206 1,388 1,759 2,237 3,005
Adjustment (See note* and
schedule) 5 12 51 78 132
As restated 1,211 1,400 1,810 2,315 3,137
Retained earnings—ending ¥ 1,400 ¥ 1,810 ¥ 2,315 ¥ 3,137 ¥ 3,651
Earnings per share (100 shares) ¥ 1.89 ¥ 4.10 ¥ 5.05 ¥ 8.22 ¥ 5.14
*Note to instructor:
The retained earnings balances are usually reported in the above manner.
If desired, only the restated balances might be reported. The adjustments
are simply the cumulative difference in income between the two inventory
methods, net of tax. For example, the ¥5 in 2006 reflects the difference in
ending inventories in 2005 (¥1,000 – ¥1,010) times the tax rate 50%. In 2007,
the difference in income of ¥7 between the two methods in 2006 is added
to the ¥5 to arrive at a ¥12 adjustment to the beginning balance of retained
earnings in 2007.
In 2010, the Company changed its method of pricing inventory from the
first-in, first-out (FIFO) to the average cost method in order to more fairly
present the financial operations of the company. The financial statements
for prior years have been restated to retrospectively reflect this change,
resulting in the following effects on net income and related per share
amounts:
Increase in
2006 2007 2008 2009 2010
Net income ¥ 7 ¥ 39 ¥ 27 ¥ 54 ¥ 44
Earnings per share ¥0.07 ¥0.39 ¥0.27 ¥0.54 ¥0.44
Schedule of Income Reconciliation

and Retained Earnings Adjustments
2006–2010
2005 2006 2007 2008 2009 2010
Beginning Inventory FIFO ¥1,000 ¥1,100.00 ¥1,000.00 ¥1,115.00 ¥1,237.00

Average Cost 1,010 1,124.00 1,101.00 1,270.00 1,500.00
Difference (10) (24.00) (101.00) (155.00) (263.00)
† †
Tax Effect (50%) 5 12.00 50.50 77.50 131.50†
Effect on Income* ¥ (5) ¥ (12.00) ¥ (50.50)† ¥ (77.50)† ¥ (131.50)
Ending Inventory FIFO ¥1,000 ¥1,100 ¥1,000.00 ¥1,115.00 ¥1,237.00 ¥1,369.00

Average Cost 1,010 1,124 1,101.00 1,270.00 1,500.00 1,720.00
Difference (10) (24) (101.00) (155.00) (263.00) (351.00)
† † †
Tax Effect (50%) 5 12 50.50 77.50 131.50 175.50
† † †
Effect on Income** ¥ 5 ¥ 12 ¥ 50.50 ¥ 77.50 ¥ 131.50 ¥ 175.50
Net Effect on Income ¥ 5 ¥ 7 ¥ 38.50† ¥ 27.00 ¥ 54.00 ¥

44.00†
Cumulative Effect on
Beginning Retained
Earnings ¥ 12 ¥ 50.50† ¥ 77.50† ¥ 131.50 ¥ 175.50
*Larger (smaller) beginning inventory has negative (positive) effect on net income.
**Larger (smaller) ending inventory has positive (negative) effect on net income.
†
The tax effects are rounded up to the next whole dollar in the problem. Therefore, the net
effects on income and retained earnings are effectively rounded down to the next whole dollar.
PROBLEM 22-6
(a) 1. Depreciation Expense ....................................... 94,500

Accumulated Depreciation—Asset A ...... 94,500
Computations:
Cost of Asset A .............................................. $540,000
Less: Depreciation prior to 2010 .................. 162,000*
Book value, January 1, 2010......................... $378,000
*($540,000 ÷ 10) X 3
Depreciation for 2010: $378,000 X 7/28** = $94,500
**[7(7 + 1)] ÷ 2 = 28
2. Depreciation Expense ....................................... 25,800

Accumulated Depreciation—Asset B ...... 25,800
Computations:
Original cost ............................................... $180,000
Accumulated depreciation (1/1/10)
$12,000 ($180,000 ÷ 15) X 4 ................... 48,000
Book value (1/1/10) .................................... 132,000
Estimated residual value .......................... (3,000)
Remaining depreciable base .................... 129,000
Remaining useful life
(9 years—4 years taken) ....................... ÷ 5
Depreciation expense—2010 .................... $ 25,800
3. Asset C ............................................................... 160,000

Accumulated Depreciation—Asset C
(4 X $16,000) ........................................... 64,000
Retained Earnings ..................................... 96,000
Depreciation Expense ....................................... 16,000

Accumulated Depreciation—Asset C ...... 16,000
(b) MADRASA INC.

Comparative Retained Earnings Statements
For the Years Ended
2010 2009
Retained earnings, January 1, as previously
reported $200,000
Add: Error in recording Asset C 112,000*
Retained earnings, January 1, as adjusted $666,000 312,000
Add: Net income 208,700** 354,000***
Retained earnings, December 31 $874,700 $666,000
*Amount expensed incorrectly in 2006 .................... $160,000

Depreciation to be taken to January 1, 2009
($16,000 X 3) ........................................................... (48,000)
Prior period adjustment for income ........................ $112,000
**Income before depreciation expense (2010) $400,000

Depreciation for 2010
Asset A $94,500
Asset B 25,800
Asset C 16,000
Other 55,000 (191,300)
Income after depreciation expense $208,700
***Net income as reported ............................................ $370,000

Depreciation—Asset C ............................................. (16,000)
Net income as adjusted ........................................... $354,000
PROBLEM 22-7
(1)
Depreciation Expense .................................................... 3,200
Accumulated Depreciation—Delivery Vehicles .... 3,200
(2)
Income Summary ............................................................ 19,000
Retained Earnings ................................................... 19,000
(3)
Cash ................................................................................. 5,600
Accounts Receivable .............................................. 5,600
(4)
Accumulated Depreciation—Equipment....................... 25,000
Equipment ................................................................ 21,300
Gain on Sale of Equipment..................................... 3,700
(5)
Estimated Litigation Loss .............................................. 125,000
Estimated Litigation Liability ................................. 125,000
(6)
Unrealized Holding Gain or Loss—Income .................. 2,000
Securities Fair Value Adjustment (Trading) .......... 2,000
(7)
Accrued Salaries Payable ($16,000 – $12,200) ............. 3,800
Salaries Expense ..................................................... 3,800
(8)
Depreciation Expense .................................................... 5,000
Equipment ....................................................................... 40,000
Repairs Expense ..................................................... 40,000
Accumulated Depreciation—Equipment ............... 5,000
(9)
Insurance Expense ($12,000 ÷ 3) ....................................... 4,000
Prepaid Insurance ............................................................... 6,000
Retained Earnings ....................................................... 10,000
(10)
Amortization Expense ($50,000 ÷ 10) ................................ 5,000
Retained Earnings ............................................................... 5,000
Trademark .................................................................... 10,000
PROBLEM 22-8
Net Income for 2009 Retained Earnings 12/31/10

Item Understated Overstated Understated Overstated
1. $14,100 0 0 0
2. $ 3,500 0 $ 2,500 0
3. 0 $22,000 0 $11,000
4. $28,000 0 $28,000 0
5. 0 $24,000 0 $12,000
6. $18,200 0 0 0
Although explanations were not required in answering the question, they

are included below for your interest.
Explanations:
1. The net income would be understated in 2009 because interest income

is understated. The net income would be overstated in 2010 because
interest income is overstated. The errors, however, would counter-
balance (wash) so that the statement of financial position (Retained
Earnings) would be correct at the end of 2010.
2. The depreciation expense in 2009 should be $500 for this machine.

Since the machine was bought on July 1, 2009, only one-half of a year‘s
depreciation should be taken in 2009 ($4,000/4 X 1/2 = $500). The
company expensed $4,000 instead of $500 so net income is understated
by $3,500 in 2010. An additional $1,000 of depreciation expense should
have been taken in 2010. At the end of 2010, retained earnings would
be understated by $2,500 ($3,500 – $1,000).
3. IFRS requires that all research costs should be expensed when

incurred. Net income in 2009 is overstated $22,000 ($33,000 research
costs capitalized less $11,000 amortized). By the end of 2010, only
$11,000 of the research costs would remain as an asset. Therefore,
retained earnings would be overstated by $11,000 ($33,000 research
costs – $22,000 amortized).
4. The security deposit should be a long-term asset, called refundable

deposits. The $8,000 of the last month‘s rent is also an asset, called
prepaid rent. The net income of 2009 is understated by $28,000
($20,000 + $8,000) because these amounts were expensed. Retained
earnings will continue to be understated by $28,000 until the last year
of the lease. The security deposit will then be refunded, and the last
month‘s rent should be expensed.
5. $12,000 or one-third of $36,000 should be reported as income each

year. In 2009, $36,000 was reported as income when only $12,000
should have been reported. Because $24,000 too much was reported, the
net income of 2009 is overstated. At the end of 2010, $24,000 should
have been reported as income, so retained earnings is still overstated
by $12,000 ($36,000 – $24,000).
6. The ending inventory would be understated since the merchandise was

omitted. Because ending inventory and net income have a direct relation-
ship, net income in 2009 would be understated. The ending inventory
of 2009 becomes the beginning inventory of 2010. If beginning inventory
of 2010 is understated, then net income of 2010 is overstated (inverse
relationship). The omission in inventory over the two-year period will
counterbalance, and retained earnings at the end of 2010 will be correct.
PROBLEM 22-9
2009 2010
Net income, as reported €29,000 €37,000
Rent received in 2009, earned in 2010 (1,000) 1,000
Wages not accrued, 12/31/08 1,100
Wages not accrued, 12/31/09 (1,200) 1,200
Wages not accrued, 12/31/10 (940)
Inventory of supplies, 12/31/08 (1,300)
Inventory of supplies, 12/31/09 940 (940)
Inventory of supplies, 12/31/10 1,420
Corrected net income €27,540 €38,740
Copyright © 2011 John Wiley & Sons, Inc.
(a) ROBERTS COMPANY

Schedule of Revised Net Income
For the Years Ended March 31, 2009, 2010, and 2011
SUMMARY
COMPUTATIONS Increases (Decreases) in Income
2009 2010 2011 2009 2010 2011
1. Net income as reported $71,600 $111,400 $103,580

Copyright © 2011 John Wiley & Sons, Inc.
2. Elimination of profit on consignments:

Billed $ 6,500 $ 5,590
at 125% of cost ÷ 125% ÷ 125%
Cost 5,200 4,472
Profit error $ 1,300 $ 1,300 $ 1,118 (1,300) 1,300 (1,118)
3. To correct C.O.D. sale 6,100 (6,100)
Kieso Intermediate: IFRS Edition, Solutions Manual
4. Adjustment of warranty expense:

Sales per books $940,000 $1,010,000 $1,795,000
PROBLEM 22-10
Correction for consignments (6,500) 6,500 (5,590)
Correction for C.O.D. sale 6,100 (6,100)
Corrected sales $933,500 $1,022,600 $1,783,310
Normal warranty expense, one-half of 1% $ 4,668 $ 5,113 $ 8,917
Less costs charged to expense 760 1,670 3,850
Kieso Intermediate: Accounting, 13/e, Solutions Manual
Additional expense $ 3,908 $ 3,443 $ 5,067 (3,908) (3,443) (5,067)

5. Bad debt adjustments:
Normal bad debt expense, one-quarter of
1% of sales $ 2,334 $ 2,557 $ 4,458
Less previous write-offs 750 1,320 3,850
Additional expense $ 1,584 $ 1,237 $ 608 (1,584) (1,237) (608)
6. Adjustment for contract financing 3,000 3,900 5,100
7. Adjustment for commissions (1,400) 500* (220)**
66,408 118,520 95,567
8. Adjustment for bonus, 1%
of income before taxes and bonus (664) (1,185) (956)
Income before income taxes $65,744 $117,335 $ 94,611
*$1,400 – $900
**$900 – $1,120
22-43
22-4
(b) ROBERTS COMPANY

Journal Entries
March 31, 2011
Sales ............................................................................ 5,590

Merchandise on Consignment .................................. 4,472
Cost of Goods Sold ............................................ 4,472
Accounts Receivable ......................................... 5,590
(To adjust for consignments treated
as sales, 3/31/11)
Sales ............................................................................ 6,100

Retained Earnings .............................................. 6,100
(To adjust for C.O.D. sales not
recorded, 3/31/10)
Warranty Expense ...................................................... 5,067

Retained Earnings ($3,908 + $3,443) ........................ 7,351
Estimated Liability Under Warranties ............... 12,418
(To set up allowance for warranty
expense)
Retained Earnings ($664 + $1,185) ........................... 1,849

Manager‘s Bonus Expense........................................ 956
Accrued Bonus Payable .................................... 2,805
(To set up accrued bonus payable
to manager)
Retained Earnings ($1,584 + $1,237) ........................ 2,821

Bad Debt Expense ...................................................... 608
Allowance for Doubtful Accounts ..................... 3,429
(To set up allowance for uncollectible
accounts)
Dealers‘ Fund Reserve (held by bank) ..................... 12,000

Finance Expense ................................................ 5,100
Retained Earnings ($3,000 + $3,900)................. 6,900
(To record finance charge reserve
held by bank)
Commissions Expense .................................................... 220

Retained Earnings ($1,400 – $500) .................................. 900
Accrued Commissions Payable............................... 1,120
(To adjust for accrued commissions)
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 22-1 (Time 25–35 minutes)

Purpose—to provide the student with some familiarity with the applications of IFRS related to
accounting changes. This case describes several proposed accounting changes with which the student
is required to identify whether the change involves an accounting policy, accounting estimate, or
correction of an error, plus the necessary reporting requirements for each proposal.

Purpose—to provide the student with an understanding of the application and reporting requirements of
IFRS. This case describes many different accounting changes with which the student is required to identify
the type of change involved and to indicate which changes necessitate the restatement of prior years’
financial statements when presented in comparative form with the current year’s statement.

Purpose—to provide the student with an understanding of IFRS and its respective applications. This case
describes three independent situations with which the student is required to identify the type of
accounting change involved, the reporting which is necessitated under current IFRS, and the effects of
each change on the financial statements.

Purpose—to provide the student with an understanding of how changes in accounting can be reflected
in the accounting records to facilitate analysis and understanding of financial statements. This case
involves several situations with which the student is required to indicate the appropriate accounting
treatment that each should be given.

Purpose—to provide the student with an opportunity to explain how to account for various accounting
change situations. Explanations for a change in estimate, and change in policy are communicated in a
written letter.

Purpose—to provide the student with an opportunity to explain the ethical issues related to changes in
estimates.
SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 22-1
(a) 1. Uncollectible Accounts Receivable. This is a change in accounting estimate. Restatement
of prior periods is not appropriate.
2. Depreciation.
a. This is a change in accounting estimate. Restatement of opening retained earnings is
not appropriate.
b. This is a new method for a new class of assets. No change is involved.
3. Mathematical Error. This is a correction of an error and prior period adjustment treatment
would be in order.
4. Preproduction Costs—Furniture Division. This should probably be construed as an

inseparability situation in that the change in accounting estimate (period benefited by
deferred costs) has been affected by a change in accounting policy (amortization on a per-
unit basis). Consequently, it is treated as a change in accounting estimate. Restatement of
opening retained earnings is not appropriate.
5. FIFO to Average-Cost Change. This is a change in accounting policy. Restatement of

December 31, 2009 retained earnings is not appropriate, given that the effect on net income
in prior periods cannot be determined. Note that a FIFO to Average Cost change does
qualify for restatement of opening retained earnings in most cases.
6. Percentage-of-Completion. This is a change in accounting policy. Retained earnings

should be adjusted.
(b) The adjustment to the December 31, 2009 retained earnings balance would be computed as
follows:
Item 3 ................................................................................................... $ (235,000)

Item 6 ................................................................................................... 1,075,000
Increase in 12/31/09 Retained Earnings .............................................. $ 840,000
CA 22-2
Should Prior
Years‘ Statements
Item Be Retrospectively
Change Type of Change Applied or Restated?
1. A change in accounting policy. Yes
2. A change in an accounting estimate. No
3. An accounting change involving both a change in accounting No

policy and a change in accounting estimate. Handle as a change
in estimate.
4. Not an accounting change but rather a change in classification. No
5. An error correction not involving a change in accounting policy. Yes
6. Not a change in accounting policy. Simply, a change in tax No

accounting.
7. A change in accounting policy. Yes
CA 22-3
Situation 1.
(a) A change from an accounting policy not generally accepted to one generally accepted is a
correction of an error.
(b) When comparative statements are presented, net income, components of net income, retained
earnings, and any other affected balances for all periods presented should be restated to correct
for the error. When single period statements are presented, the required adjustments should be
reported in the opening balance of retained earnings. A description of the change and its effect on
net income, and the related per share amounts should be disclosed in the period of the change.
Financial statements of subsequent periods need not repeat the disclosures.
(c) The beginning balance of retained earnings in the statement of financial position is restated. The
income statement for the current year should report the correct approach for revenue recognition.
If prior years’ financial statements are presented, they should be restated directly.
Situation 2.
(a) The change in method of inventory pricing represents a change in accounting policy, as defined
by IFRS.
(b) Changes in accounting policy are accounted for through retrospective application. Under this
approach, the cumulative effect of the new method on the financial statements at the beginning of
the period is computed (and recorded in retained earnings at the beginning of the period). Prior
statements are changed to be reported on a basis consistent with the new standard.
(c) As a result of the change to weighted-average costing, the current year statement of financial
position will reflect weighted-average costing (at relatively higher prices in times of rising prices).
Cost of goods sold will also be different (higher), resulting in lower income.
CA 22-3 (Continued)
Situation 3.
(a) A change in the depreciable lives of fixed assets is a change in accounting estimate.
(b) In accordance with IFRS, the change in estimate should be reported in the current period and in
future periods. Unlike a change in accounting policy, the change in accounting estimate should
not be accounted for by presenting prior earnings data giving effect to the change as if it had
been applied retrospectively.
(c) This change in accounting estimate will affect the statement of financial position in that the
accumulated depreciation in the current and future years will increase at a different rate than
previously reported, and this will also be reflected in depreciation expense in the income
statement in the current and future years.
CA 22-4
1. This situation is a change in estimate. Whenever it is impossible to determine whether a change
in policy or a change in estimate has occurred, the change should be considered a change in
estimate. A change in estimate employs the current and prospective approach by:
(a) Reporting current and future financial statements on the new basis.
(b) Presenting prior periods’ financial statements as previously reported.
(c) Making no adjustments to current opening balances for purposes of catch-up.
2. This situation is considered a change in estimate because new events have occurred which call
for a change in estimate. The accounting should be the same as discussed in 1.
3. This situation is considered a correction of an error. The general rule is that careful estimates
which later prove to be incorrect should be considered changes in estimates. Where the estimate
was obviously computed incorrectly because of lack of expertise or in bad faith, the adjustment
should be considered an error. Changes due to error should employ the retroactive approach by:
(a) Restating, via a prior period adjustment, the beginning balance of retained earnings for the
current period.
(b) Correcting all prior period statements presented in comparative financial statements. The
amount of the error related to periods prior to the earliest year’s statement presented for
comparative purposes should be included as an adjustment to the beginning balance of
retained earnings of that earliest year’s statement.
4. No adjustment is necessary—a change in accounting policy is not considered to have happened if

a new policy is adopted in recognition of events that have occurred for the first time.
5. This situation is considered a change in estimate because new events have occurred which call
for a change in estimate. The accounting should be the same as discussed in 1.
CA 22-4 (Continued)
6. This situation is considered a change in accounting policy. A change in accounting policy should
employ the retrospective approach by:
(a) Reporting current results on the new basis.
(b) Presenting prior period financial statements on a basis consistent with the newly adopted
method.
(c) Computing the cumulative effect of the new method in beginning retained earnings on the
earliest year presented.
CA 22-5
Mr. Joe Davison, CEO Sports-Pro Athletics
Dear Mr. Davison:
You recently contacted me about two accounting changes made at Sports-Pro Athletics, Inc. in 2010.
This letter details how you should account for each change.
Your change from one method of depreciation to another constitutes a change in accounting estimate.
A change in estimate employs the current and prospective approach by reporting current and future
financial statements on the new basis. Prior periods financial statements are presented as previously
reported.
Your change in residual values for your office equipment is also considered a change in estimate. This
type of change does not really affect previous financial statements and is thus accounted for currently
and prospectively. The change is included in the most current period being reported. There is no need
to restate prior periods’ financial statements.
I hope that this information helps you account for the changes which have taken place at Sports-Pro
Athletics. If you need further information, please contact me.
Sincerely,
CA 22-6
(a) The ethical issues are the honesty and integrity of Frost’s financial reporting practices versus the
Corporation’s and the accounting manager’s profit motives. Shortening the life of fixed assets
from 10 to 6 years may be evidence that depreciation expense during the first five years were
understated. Such a practice distorts Frost’s operating results and misleads users of Frost’s
financial statements. If this practice is intentional, it is unethical.
(b) The primary stakeholders in the above situation include Frost’s shareholders and creditors. Crane
and his auditing firm are stakeholders because they know of the depreciation practices at Frost.
(c) Crane should report his finding to the partner-in-charge of the Frost engagement. If this practice
is deemed to be intentional and fraudulent, then Crane’s firm has a professional responsibility to
report this incident to the highest levels of management within Frost (the Audit Committee of the
Board of Directors).
FINANCIAL REPORTING PROBLEM
(a) M&S adopted the following policies during 2007 – 2008:
• IFRS 7 – ‗Financial Instruments: Disclosures‘ and the complementary

amendment to IAS 1 – ‗Presentation of Financial Statements – Capital
Disclosures‘ were issued in August 2005 and have introduced
revised and additional disclosures. This implementation has had
no impact on the results or net assets of the Group.
• IFRIC 11 – ‗IFRS 2 – Group and Treasury Share Transactions‘ was

issued in November 2006. It clarifies the guidance for applying
share-based payment arrangements to the separate financial
statements of each group company. It is required to be implemented
by the Group from 30 March 2008. It has had no material impact on
the results or net assets of the Group but has led to a prior year
adjustment in the Company‘s financial statements.
• IFRIC 14 – ‗The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction‘ was issued in July 2007. It
limits the recognition of a defined benefit asset when minimum
funding requirements exist within a plan. It was implemented by
the Group from 1 April 2007 and had no material impact on the
results or net assets of the Group.
(b) The estimates M&S discussed in 2008 were impairment of goodwill;

impairment of pp&e; depreciation of pp&e; post-retirement benefits;
and refunds and loyalty scheme accruals.
COMPARATIVE ANALYSIS CASE
Cadbury vs. Nestlé

(a) and (c) for Cadbury:
Recent Accounting Standards and Pronouncements
IFRS 8, Operating Segments has been adopted in advance of its effective

date with effect from 1 January 2008. In addition to the adoption of IFRS 8,
the Group has changed the measure of operating profit, which is disclosed
segmentally to align with the way the chief operating decision maker
assesses the performance of and allocates the Group‘s resources to the
segments. As such the 2007 segmental analysis has been re-presented to
allocate certain global Supply Chain, Commercial and Science and
Technology costs which directly support the business to the regional
operating segments.
On 7 May 2008, the Group completed the demerger of the Americas

Beverages business and in December 2008 the Group announced it had
signed a conditional agreement to sell the Australia Beverages business.
The Income Statement and related notes for 2007 have been re-presented to
classify these businesses as discontinued, in accordance with IFRS 5, ―Non-
current assets held for sale and discontinued operations‖ as described in
Note 31.
The income statement and related notes for 2007 have been re-presented to
classify the Americas Beverages business and the Australia Beverages
business as discontinued.
COMPARATIVE ANALYSIS CASE (Continued)
(b) and (c) for Nestlé:
IFRIC 14 – IAS 19 – The limit on a defined benefit asset, minimum funding

requirements and their interaction. This interpretation requires to determine
the availability of refunds or reductions in future contributions in accordance
with the terms and conditions of the plans and the statutory requirements
of the plans of the respective jurisdictions. The retrospective application of
IFRIC 14 impacted the 2007 Consolidated Financial Statements (refer to
Note 32).
Reclassification of Financial Assets – Amendments to IAS 39 – Financial

instruments: Recognition and Measurement and IFRS 7 – Financial
Instruments: Disclosures. These amendments allow entities to reclassify
non-derivative financial assets out of fair value through profit or loss if the
assets are no longer held for the purpose of selling or repurchasing and if
the entity has the intention and ability to hold them for the foreseeable
future or until maturity. The Group did not reclassify any financial assets
out of the fair value through profit or loss category in 2008.
IFRIC 14 effected the employee benefit assets, deferred tax liabilities, and
total equity attributable to shareholders of the parent for 2007. The amounts
were 1026, 233, and 793, respectively (million CHF). The Statement of
recognised income and expense for the year ended 31 December 2007 was
also effected. Actuarial gains/(losses) on defined benefit schemes was
effected by (324) million CHF, and Taxes on equity items was effected by 73
million CHF. The first application of this interpretation did not affect the
profit for the period nor earnings per share.
ACCOUNTING, ANALYSIS, AND PRINCIPLES
ABC CO.
Statement of Financial Position
at December 31
2011 2010 2011 2010
PPE $ 400 $ 400 Share capital $ 500 $ 500
Accumulated depreciation (120) (80) Retained earnings 908 745
$ 280 $ 320
Inventory 580 560

Cash 548 365
Total assets 1,408 1,245 Total equity $1,408 $1,245
ABC CO.
Income Statement
for the Year Ended December 31,
2011 2010
Sales.................................................................................. $550 $500
Cost of goods sold .......................................................... 330 290
Depreciation expense ...................................................... 40 40
Compensation expense ................................................... 17 15
Net income........................................................................ $163 $155
2010 purchase: $480 + P – $300 = $500; P = $320

2010 Beginning inventory using FIFO = $480 + $50 = $530
2010 Ending inventory using FIFO = $500 + $60 = $560
2010 Cost of goods sold using FIFO = $530 + $320 – $560 = $290
2010 Retained Earnings = $685 + $60 = $745
2011 Retained Earnings = $745 + $163 = $908

2011 Cost of goods sold = $560 + $350 – $580 = $330
2011 Depreciation Expense = $400/10 = $40
2011 Accumulated Depreciation = $80 + $40 = $120
2011 Cash = $365 + $550 – $350 – $17 = $548
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
ANALYSIS
Average cost (as reported):
Inventory turnover = $300 ÷ $500 = 0.60
FIFO:
Inventory turnover = $290 ÷ $560 = 0.52
Inventory turnover is lower under FIFO, which leads to ROA being

slightly higher. Under FIFO (in this example) COGS is lower because
older costs that had been deferred in the inventory balance under
average cost were brought to COGS. The inventory balance is higher
because FIFO leaves the most recent inventory costs in the inventory
account.
PRINCIPLES
The issue is consistency across time. When a company changes accounting

policies, financial statements from one period are not really comparable to
the financial statements of the next period because they are based on
different accounting policies. IFRS requires restating past results presented
for comparison to the new accounting policy so that financial statement
readers can see how the company‘s financial position and performance
have changed without the effects of an accounting change.
PROFESSIONAL RESEARCH
(a) The guidelines for reporting a change in accounting principle related to

depreciation methods can be found in IAS 8, paragraphs 32-38, under
the heading ―Changes in accounting estimates.‖
(b) According to paragraph 14, ―An entity shall change an accounting policy
only if the change:
(1) is required by an IFRS; or
(2) results in the financial statements providing reliable and more

relevant information about the effects of transactions, other
events or conditions on the entity‘s financial position, financial
performance or cash flows.‖
PROFESSIONAL SIMULATION
Journal Entry
Inventory .................................................................. 18,000*

Retained Earnings.................................... 18,000
*($20,000 + $24,000 + $27,000) – ($15,000 + $18,000 + $20,000)
Financial Statements
Computation of EPS for 2011
Basic EPS
Net income ................................................... $30,000
Outstanding shares ..................................... 10,000
Basic EPS ..................................................... $ 3.00 ($30,000 ÷ 10,000)
Diluted EPS
Net income ................................................... $30,000
Add: Interest savings ($200,000 X 6%) ..... 12,000
Adjusted net income ................................... $42,000
Adjusted net income ................................... $42,000

Outstanding shares ..................................... 10,000
Shares upon conversion............................. 6,000*
Diluted EPS .................................................. $ 2.63 ($42,000 ÷ 16,000)
*$200,000 ÷ $1,000 = 200 bonds; 200 bonds X 30 = 6,000 shares
PROFESSIONAL SIMULATION (Continued)
Computation of EPS for 2010
Basic EPS
Net income...................................................... $27,000
Outstanding shares ....................................... 10,000
Basic EPS ....................................................... $ 2.70 ($27,000 ÷ 10,000)
Diluted EPS
Net income...................................................... $27,000
Add: Interest savings ($200,000 X 6%) ....... 12,000
Adjusted net income ...................................... $39,000
Adjusted net income ...................................... $39,000

Outstanding shares ....................................... 10,000
Shares upon conversion ............................... 6,000
Diluted EPS..................................................... $ 2.44 ($39,000 ÷ 16,000)
EPS Presentation
2011 2010
Net income $30,000 $27,000
Basic EPS $ 3.00 $ 2.70
Diluted EPS $ 2.63 $ 2.44

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ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)

1. Identify the two types of accounting changes.

2. Describe the accounting for changes 1

3. Understand how to account for retrospective 1, 2, 3, 1, 2, 3, 4, 5, 2, 3, 5

5. Describe the accounting for changes 4, 5, 9 6, 7, 8, 9, 1, 2, 3,

6. Describe the accounting for correction of errors. 6, 7, 8, 10 7, 8, 9, 15, 1, 2, 3, 6,

7. Identify economic motives for changing

P22-1 Change in estimate and error correction. Moderate 30–35

CA22-1 Analysis of various accounting changes and errors. Moderate 25–35

1. The major reasons why companies change accounting policies are:

7. This is an example of a situation in which it is difficult to differentiate between a change in account-

8. (a) Charge to expense—possibly separately disclosed.

(e) Change in accounting policy—retrospective application to all affected prior-period financial

18. December 31, 2011

Depreciation Expense [(£36,000 – £3,600) ÷ 20] ........................................ 1,620

Depreciation Expense .................................................................................. 2,400

BRIEF EXERCISE 22-1

Construction in Process ($120,000 – $80,000) .......... 40,000

BRIEF EXERCISE 22-2

Difference in profit-sharing expense—prior years

BRIEF EXERCISE 22-3

Inventory ...................................................................... 1,200,000

BRIEF EXERCISE 22-4

Cost of depreciable assets ......................................... $250,000

Depreciation in 2010 = $120,000 ÷ 8 = $15,000.

Depreciation Expense .................................................. 15,000

Depreciation Expense ........................................................ 24,000

*Book value before change

BRIEF EXERCISE 22-6

Equipment ........................................................................... 50,000

BRIEF EXERCISE 22-7

Retained earnings, January 1, as previously reported........ ¥20,000,000

BRIEF EXERCISE 22-9

1. The change to a three-year remaining life for the purpose of computing

2. This is an expense classification change arising from a change in the

3. The change to expensing preproduction costs (writing the costs off in

BRIEF EXERCISE 22-10

1. Both FIFO and average cost are generally accepted accounting

2. This oversight is a mistake that should be corrected. Such a correction

3. Both the cost-recovery method and the percentage-of-completion

EXERCISE 22-1 (10–15 minutes)

(b) Construction in Process ....................................... 170,000

*($170,000 X 65% = $110,500)

EXERCISE 22-2 (10–15 minutes)

(a) Inventory ................................................................ 11,000*

*($19,000 + $21,000 + $25,000) –

(b) Net Income (FIFO) 2008 $19,000

(a) RAMIREZ CO.

(b) RAMIREZ CO.

Change in Method of Accounting for Inventory Valuation

On January 1, 2010, Ramirez elected to change its method of valuing

Cost of Goods Sold $1,130 $1,100 $30 $1,000 $ 940 $60

Statement of Cash Flows

(d) Retained earnings statements after retrospective application.

*[£8,000 (2006) + £5,000 (2007)]

*[£8,000 (2006) + £5,000 (2007) + £10,000

*[£20,000 at 12/31/2010 – £5,000 (2011)]

2009 2010 2011