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ABC Co. acquired a new brand cost RM10 M on 1/1/2001. The useful life was determined as indefinite. On 1/1/2004 ABC Co. reviewed the economic life and determined it as 4 years.
- There is no amortization of the brand till year 2004 as its life was indefinite. On review, it was determined that the life is now 4 years from 2004. Therefore, the brand will be amortized over 4 years beginning 2004. Amortization will be charged RM2.5 M each year. Carrying amount at 31/12/2004 will be RM7.5 M ( RM10 M - RM2.5 M). Change from indefinite to finite life was changes in accounting estimates.
examples of areas:
Prospective application means
Adjustment is done as if the new
accounting policy had always been applied before
- Correct the material error RESTROPECTIVELY in the first set of financial statements authorised for issue after their discovery
FUNDAMENTAL ERRORS
How to
select which Accounting Policies to apply?
Prudence
ASSETS
restating the opening balance of
Neutral, Not Bias
LIABILITIES
Reflect Economic SUBSTANCE of transaction
EQUITY
Faithful
Complete in all material
GUIDELINES FOR:
- an entity may discover errors during the current period which relates to a prior period
MFRS 108
ommisions from misstatements in the entity's financial statements
or misuse of reliable information
adjustments of the - carrying amount of asset/liability - amount of the periodic consumption of an asset
may have to be revised - changes regarding the circumstances on which the estimates were based as a result of new information, or more experiences or subsequent development
revision of estimates is not correction of errors