Would your answer to (a) and (b) be different if there was no clearly expressed reason for the alteration to the depreciation policy? (LO4)

The directors of Jean Ltd decide to change the company’s depreciation policy for plant

 

and equipment. The decision is taken on 30 June 2018 and is based on the chief financial

officer’s assessment that the change would result in more relevant and reliable

information in the financial statements. A review of the accounting records of Jean Ltd

reveals that, if the new policy had always been applied, depreciation expense for the

year ended 30 June 2017 would have been $40 000. In the years before the year ended

30 June 2017, application of the new policy would have resulted in an increase of

$442 857 in the total amount of depreciation recognised. Jean Ltd has profit before tax

for the period ended 30 June 2018 of $870 000 (against which depreciation expense of

$42 000 was charged) and $793 000 for the previous year ended 30 June 2017. The

opening retained earnings and closing retained earnings for the period ended 30 June

2017 were $1 281 600 and $1 498 700, respectively. The income tax rate for Jean Ltd has

been 30% since 2003. Ignore the effects of AASB 112 ‘Income Taxes’.

(a) Prepare general journal entries, if any, to account for the change in accounting policy

in accordance with AASB 108 ‘Accounting Policies, Changes in Accounting Estimates

and Errors’ (b) Prepare extracts from the statement of comprehensive income and statement of

changes in equity for the period ended 30 June 2018.

(c) Would your answer to (a) and (b) be different if there was no clearly expressed reason

for the alteration to the depreciation policy? (LO4)

 

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