Noel A.

Bergonia, MBA, CPA

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 Accounting Policies vs. Changes in
Accounting Estimates vs. Errors
Errors are omissions from, and
misstatements in, the entity’s financial
statements arising from a failure to use,
or misuse of, reliable information. Such
errors include the effects of
mathematical mistakes, mistakes in
applying accounting policies, oversights
or misinterpretations of facts, and
fraud.
Accounting policies are the specific principles,
bases, conventions, rules and practices applied
by an entity in preparing and presenting
financial statements.
A change in accounting estimate is an
adjustment of the carrying amount of an asset or
a liability, or the amount of the periodic
consumption of an asset, that results from the
assessment of the present status of, and
expected future benefits and obligations
associated with, assets and liabilities.
Noel A. Bergonia, CPA, MBA
 ACCOUNTING POLICIES ACCOUNTING ESTIMATE
Definition These are the specific principles, bases, This is an adjustment of the carrying amount
conventions, rules and practices applied by an of an asset or a liability, or the amount of
entity in preparing and presenting financial the periodic consumption of an asset, that
statements. results from the assessment of the present
status of, and expected future benefits and
1. Based on IAS/IFRS or IFRIC or PIC; obligations associated with, assets and
2. Requirements in IFRS dealing with similar liabilities.
issues
3. Conceptual framework

Examples • FIFO, Average • Bad debts

• The initial application of a policy to revalue • Inventory obsolescence
assets in accordance with IAS 16 Property, Plant • The fair value of financial assets or financial
and Equipment or IAS 38 Intangible Assets is a liabilities
change in an accounting policy to be dealt with • The useful lives of, or expected pattern of
as a revaluation in accordance with IAS 16 or IAS consumption of the future
38, rather than in accordance with IAS 8 • economic benefits embodied in, depreciable
• Change from cost model to fair value model for assets
investment property • Warranty obligations
Noel A. Bergonia, CPA, MBA
 ACCOUNTING POLICIES
Treatment Retrospective application
(applying a new accounting policy to
transactions, other events and conditions as if
that policy had always been applied.)
→ Adjust the opening balance of the retained
earnings
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ACCOUNTING ESTIMATE
Prospective application
(a) the period of the change, if the change
affects that period only; or
(b) the period of the change and future
periods, if the change affects
both.
When it is impracticable to determine the
cumulative effect, at the beginning of the
current period, of applying a new accounting
policy to all prior periods, the entity shall adjust
the comparative information to apply the new
accounting policy prospectively from the earliest
date practicable. (IAS 8 par. 25)
Noel A. Bergonia, CPA, MBA
Example 1
On January 1, 2018, Haebom Corp. purchased for P132,000 a machine to be
depreciated by the straight-line method over the estimated useful life of eight years,
without salvage value. On January 1, 2021, Haebom determined that the machine has
a useful life of six years from the date of acquisition without a salvage value. An
accounting change was made in 2021 to reflect this data. What is the accumulated
depreciation balance at Dec. 31, 2021, after the appropriate adjusting entry for
depreciation is made?

Noel A. Bergonia, CPA, MBA

Example 2
On Jan. 1, 2019, Taesung Mining Company purchased land with valuable natural ore deposits
for P20,000,000. At that time, the estimated recoverable output from the mine is 4,000,000
metric tons of ore which the land is expected to have a residual value of P3,000,000.
Development cost of P1,500,000 was also spent during the year. In 2019, 2,000,000 metric
tons were mined, At the end of 2020, a new estimate of remaining recoverable ore indicated
2,500,000 metric tons are available. During 2020, 1,500,000 metric tons were mined. How
much is the depletion expense for 2019 and 2020, respectively?

Noel A. Bergonia, CPA, MBA

 The following data relate to the first three years of operations

Problem 3
for Dragon Fruit Company:

2017 2018 2019

Net profit under Weighted Average P 500,000 P 350,000 P 260,000
Net profit under FIFO 220,000 120,000 220,000
2017 2018 2019 Ending inventory under Weighted Average 650,000 670,000 610,000
Ending inventory under Weighted Average 650,000 670,000 610,000
(280,000) (280,000) (280,000)
(230,000) (230,000) How much is the ending inventory using the FIFO method on
(40,000) December 31, 2017, December 31, 2018 and December 31,
Ending inventory under FIFO 370,000 160,000 60,000 2019?

WEIGHTED AVERAGE FIFO WEIGHTED AVERAGE FIFO WEIGHTED AVERAGE FIFO

2017 2017 2018 2018 2019 2019
Net sales (assumed) 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000
Beginning inventory 0 0 650,000 370,000 670,000 160,000
Net purchases 1,150,000 1,150,000 670,000 670,000 680,000 680,000
Ending inventory 650,000 370,000 670,000 160,000 610,000 60,000
Cost of Goods Sold 500,000 780,000 650,000 880,000 740,000 780,000
Gross profit 500,000 220,000 350,000 120,000 260,000 220,000
Expense (assumed) 0 0 0 0 0 0
Profit 500,000 220,000 350,000 120,000 260,000 220,000

Noel A. Bergonia, CPA, MBA

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Noel A. Bergonia, CPA, MBA