Question

Question 3: Woo Ltd. recently conducted an extensive review of its accounting and reporting policies. The following accounting changes are an outgrowth of that review: 1. Woo acquired a machine at a cost of $400,000 in 2016. The machine has been depreciated on a straight-line basis with no residual value since it was acquired. During 2019, it was decided that the benefits from the machine would be consumed over a total of 13 years rather than the 20-year useful life now being used to depreciate its cost. 2. At the beginning of 2019, Woo changed its method of valuing inventory from the FIFO cost method to the weighted-average cost method. At December 31, 2018 and 2017, Woo’s inventories were as follow: 2018 2017 On a FIFO cost basis $560,000 $540,000 On a weighted-average cost basis $500,000 $490,000 3. Woo‘s income tax rate is 20%. 4. Woo reports net income for 2019 and 2018 for the following amounts: 2019 2018 Net income $840,000 $900,000 5. The retained earnings of Woo as at December 31, 2018 and 2017 before adjusting the effect from the changes in inventory valuation method are as follow: 2018 2017 Retain earnings $3,200,000 $2,800,000 6. Dividends declared during 2019 and 2018 were $100,000 and $500,000, respectively. Required: a. Prepare the journal entries needed in 2019 related to each change. [10 marks] b. Prepare the statements of changes in equity (in part) for the year ended at 31 December 2019 after the adjustments (including comparative figure for 2018) in accordance with HKAS 8. [10 marks]

Answer 1

Answer :

In the Books of WOO LTD Journal Entries for the year 2019
Fixed Asset for year 2019
(1).	Depreciation	$30769
	To Accumulated depreciation		$30769
(2).	Entries for revision in depreciation for earlier year (2016 -to 2018)
	Depreciation	32307
	To Accumulated depreciation		32307
	Entries for inventory (change in method of valuation from FIFO to weighted Average)
	Profit and loss	70000
	Inventory		70000

Statement of changes in equity for the year ended at 31.12.2019

	2019
Net income statement	$840,000
Less Depreciation for 2019	30769
Retained earnings	$809,231
Less : Prior Year adjustment for depreciation and inventory valuation	$102,307
	$706,924
Retained earnings as on 2018	$3,200,000
Add : Retained for the period ended 2019	$706,924
Retained earnings as on 2019	$3,906,924

Workings

	Life of Asset originally considered as 20 Years	Life of Asset received to 13 years	Difference
Asset acquired in year 2016	400000	400000
Depn for 2016	20000	30769	-10769
Written down value	380000	369231
Depn for 2017	20000	30769	-10769
Written down value	360000	338462
Depn for 2018	20000	30769	-10769
	340000	307693

Revision in valuation of Inventory

	FIFO	Wt Avg	Changed to P&L
2018	560000	500000	60000
2017	500000	490000	10000