Question 3

You are the finance director of Lorton Plc. The following transactions relate to its financial statements for the year ended 31 March 2019:

1) In previous financial statements, Lorton Plc accounted for its non-current assets using the historical cost basis. In the current period, however, Lorton Plc has adopted the revaluation model of IAS 16 to account for its non-current assets.

2) Lorton Plc previously had a policy of calculating depreciation on equipment using the straight line method at a rate of 20%. However, in light of significant losses recognised on recent disposals the management have decided to depreciate equipment by using the reducing balance method at a rate of 30% which will more accurately reflect the wear and tear of equipment.

3) Lorton Plc applies the AVCO (weighted average cost) method for valuing inventory. You have noticed the value of the inventory brought forward in the current period which refers to the closing inventory balance from last year has been changed. This is due to it being incorrectly valued using the LIFO (last-in, first-out) method last year. 

Required:

With reference to IAS 8, Accounting Policies, Changes in Accounting Estimates, Errors:

a) Review each of the above transactions and identify with explanations whether they would be a change in accounting policy, an accounting estimate or an error.

b) List the disclosures required when a material prior period error is corrected.