Case 7: IAS 8 - Accounting Policies, Changes in Accounting
Estimates, and Errors
Scenario:
RetailHub Ltd. has been using the straight-line method to
depreciate its store equipment, assuming a useful life of 10 years
with no residual value. As of January 1, 2024, the carrying
amount of the equipment is $4 million. The company re-
evaluated the usage pattern of its equipment and decided to
switch to the reducing balance method at a rate of 20% per
annum, effective from the beginning of 2024.
Additionally, the company discovered that an expense of
$300,000 incurred for staff training in 2023 was incorrectly
capitalized as part of intangible assets. The management wants
to correct this error in the 2024 financial statements.
Required:
a) Discuss whether the change in depreciation method should
be treated as a change in accounting policy or a change in
accounting estimate under IAS 8. (4 marks)
b) Calculate the depreciation expense for 2024 using the
reducing balance method and compare it with the straight-
line method. (4 marks)
c) Explain how RetailHub Ltd. should correct the error in
capitalization of the staff training cost in the 2024 financial
statements, and provide the journal entries for the
correction. (4 marks)
d) Discuss the impact of the change in depreciation method
and the error correction on the financial statements and
how these changes should be disclosed. (3 marks)
