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Hello,
In Question part d:
d) The figure for development expenditure in the list of account balances represents the amounts deferred in previous years in respect of the development of a new product. Unfortunately, during the current year, the government has introduced legislation which effectively bans this type of product. As a consequence of this the project has been abandoned. The directors of Wingers are of the opinion that writing off the development expenditure, as opposed to its previous deferment, represents a change of accounting policy and therfore wish to treat the write off as a prior period adjustment.
In BPP kit’s solution, the development expenditure is taken as a revaluation reserve and eventually added in the retained earnings in the statement of changes and equity? I don’t get this, could you please explain this to me?
I can’t agree with the directors. The policy is to comply with the IAS and now, as a result of the change in legislation, compliance results in an immediate write off. Policy was to defer and amortise over estimated useful life. Useful life is now estimated at zero years
What I cannot understand is why ( according to you ) BPP have taken a debit balance asset “as a revaluation reserve” ( a credit ). Nor do I understand your comment about it being “added in the retained earnings in the statement of changes in ( note, it’s “in”, not “and” ) equity
Thank you for correcting me.
In the Question, the amount of development expenditure is 30,000, so in the solution when they made Income Statement, they recorded it as a loss on abandonment of research project, and i get it.
But when it comes to Statement of Changes In Equity,
They added this 30,000 in the openeing retained earning,
and they said, ‘$71600 (that is openeing retained earning amount) from the trial balance, plus $30,000 from the revaluation surplus.
Whereas in the question there is neither such account nor any adjustment required.
If it is to be treated as a change in accounting policy, shouldn’t the treatment be retrospectively, i.e. by subtracting $30,000 from the opening retained earnings?Thanks in advance..
But I thought that I had just pointed out that it ISN’T a change in policy.
I think that 30,000 is related to the information given in part (c) of the question.
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