Question

Daniel and Christian are discussing cases where the retrospective approach cannot be used because it is considered impracticable to do so. Christian says that in cases like this, the change in accounting principle will still be allowed, but Daniel disagrees. Who is correct?

Select one:

a. Daniel, the company will be prohibited from switching accounting principles for this period, which will have to wait until the calculations can be properly completed.

b. Daniel, the company will not be permitted to switch accounting principles, but if they can determine the cumulative effect within the year, then the change will be considered retroactive.

c. Christian, the company will need to prospectively apply the new accounting principle in the earliest period, but they should not disclose why they did not include calculations for the cumulative effect.

d. Christian, the company will need to prospectively apply the new accounting principle in the earliest period, and they will need to disclose why they did not include calculations for the cumulative effect.

Answer 1

Correct asnwer is

D) Christian, the company will need to prospectively apply the new accounting principle in the earliest period, and they will need to disclose why they did not include calculations for the cumulative effect.

As per IAS 8, Change in accounting principle should be reported retrospectively that is prior period should be adjusted by adjsuting retained earnings However if it is impractiable to apply the retrospective approach due to the reason mentioned in IAS 8, then the company should apply the new accounting principle by restating the earliest possible period financial statements which could be current period.They could dos o by disclosing why they were not bale to apply the retrospective approach mentioning all reasons i.e why they did not include calculations for cumulative effect.

Hope it helps!!