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IAS 8 – Example 3 – ACCA Financial Reporting (FR)

VIVA

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  1. Hello Chris,

    It’s nice watching your lectures. I really appreciate how your lectures are easy to understand.

    I have a question.

    The total sales figure will be overstated due to the error. And I do understand that the expenses will do the job by netting it off. But when publishing the financial statements, the sales figure will still be presented as it to the users, that is, including the error.
    So to overcome this, do we make the disclosure to the notes to acknowledge this matter instead of actually correcting the sales figure? Otherwise the users of the accounts would probably think that we have achieved that amount of sales in that year.

    Thank you so much.

  3. prior period example:

    – why is the 2.4 million not deducted from retained earnings from previous period?
    – why is the 2.4 million deducted from receivables of current period and not prior period?

    • Patrick!
      Coz, prior period SPL is closed and you cannot do any adjustments once the financial statements are finalized and posted. ( P/L) items are not brought forward to the the next year.
      But as far as SFP is concerned, the items and the figures in the SFP brought forward to the next year as well.
      Hope it clears.

  4. but this adjustment of opening balance receivables will definitely affect the current year income.
    because as you credit receivables and debit SOCI the current income would be debited as well. so how do you do this?

  6. I couldn’t work out how the debit entries worked here because receivables are usually increased when we debit the receivables and credit the sales. So how does the reversal work by debit entry on expenses? Also could you explain how prior period receivables are settled against soce?? Thanks..

    • Hi,

      The initial sale has already been made, which will have created the receivable. The receivable is now no longer collectible, so needs to be removed. To remove the asset we need to credit it, and the other side will go to an expense account, for those sales generated in the current year.

      Any sales from previous periods, then the debit entry goes through the SOCE, as an adjustment to the opening retained earnings.

      Thanks

      • Thank you Chris

        But am a bit confused..the narrative of the problem mentions that there is fraudulent financial reporting and as such doesnt it imply that sales and receivables were exagerated..If so, why should the debit entry be made to expenses..Doesnt a rectification need to be made by reducing Revenues / Sales..Please help to enhance my understanding

        Thank you and Regards

        Aasif

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