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in accounting estimates.

In preparing its financial statements for 31 March 20X3, the entity made the warranty provision and inventory

valuation appropriately using all reliable information that the entity could reasonably be expected to have
obtained and had taken into account the same in the preparation and presentation of those financial
statements.
Consequently, the additional costs are expensed in calculating profit or loss for 20X3-20X4.
Working Note:

Inventory is measured at the lower of cost (i.e. Rs. 15,000) and fair value less costs to complete and sell (i.e.
Rs.18,0000 originally estimated minus Rs. 5,000 costs to rectify latent defect) = Rs. 13,000.

Q5 (Nov 21)

While preparing interim financial statements for the half-year ended 30 September 20X2, an entity discovers
a material error (an improper expense accrual) in the interim financial statements for the period ended 30
September 20X1 and the annual financial statements for the year ended 31 March 20X2. The entity does not
intend to restate the comparative amounts for the prior period presented in the interim financial statements

as it believes it would be sufficient to correct the error by restating the comparatives in the annual financial
statements for the year ended 31 March 20X3. Is this acceptable? Discuss in accordance with relevant Ind
AS.

SOLUTION
Ind AS 8, inter alia, states that an entity shall correct material prior period errors retrospectively in the first
set of financial statements approved for issue after their discovery by restating the comparative amounts for
the prior period(s) presented in which the error occurred.

Ind AS 34 requires an entity to apply the same accounting policies in its interim financial statements as are
applied in its annual financial statements (except for accounting policy changes made after the date of the
most recent annual financial statements that are to be reflected in the next annual financial statements).
Ind AS 34 cites ―corrections of prior period errors‖ as an example of events or transactions which need to be
explained in an entity‖s interim financial report if they are significant to an understanding of the changes in

financial position and performance of the entity since the end of the last annual reporting period.
Ind AS 34, Interim Financial Statements, states as follows:
“While judgement is always required in assessing materiality, this Standard bases the recognition and
disclosure decision on data for the interim period by itself for reasons of understandability of the interim
figures. Thus, for example, unusual items, changes in accounting policies or estimates, and errors are

recognised and disclosed on the basis of materiality in relation to interim period data to avoid misleading
inferences that might result from non-disclosure. The overriding goal is to ensure that an interim financial
report includes all information that is relevant to understanding an entity‖s financial position and performance
during the interim period.”
In view of the above, the entity is required to correct the error and restate the comparative amounts in

interim financial statements for the half-year ended 30 September 20X2.

28. 6