Page 9 - 28. COMPILER QB - IND AS 8

MTPs QUESTIONS

Q7 (May 20 – 6 Marks)

During the year ended 31st March, 20X2, Blue Ocean group changed its accounting policy for depreciating
property, plant and equipment, so as to apply components approach fully, whilst at the same time adopting
the revaluation model.
In years before 20X1-20X2, Blue Ocean group‖s asset records were not sufficiently detailed to apply a

components approach fully. At the end of 31st March, 20X1, management commissioned an engineering survey,
which provided information on the components held and their fair values, useful lives, estimated residual values
and depreciable amounts at the beginning of 20X1-20X2.
The results are shown as under:
Property, plant and equipment at the end of 31st March,20X1
Rs.

Cost 25,000
Depreciation (14,000)
Net book value 11,000
Depreciation expense for 20X1-20X2 (on old basis) 1,500
Some results of the engineering survey:
Valuation 17,000
Estimated residual value 3,000
Average remaining asset life (years) 7
However, the survey did not provide a sufficient basis for reliably estimating the cost of those components
that had not previously been accounted for separately, and the existing records before the survey did not
permit this information to be reconstructed.
The board of directors considered how to account for each of the two aspects of the accounting change. They

determined that it was not practicable to account for the change to a fuller components approach
retrospectively, or to account for that change prospectively from any earlier date than the start of 20X1-20X2.
Also, the change from a cost model to a revaluation model is required to be accounted for prospectively.
Therefore, management concluded that it should apply Blue Ocean group‖s new policy prospectively from the
start of 20X1-20X2.
Blue Ocean group‖s tax rate is 30%.

Compute the impact of change in accounting policy related to change in carrying amount of Property, Plant &
Equipment under revaluation method and impact on taxes based on the basis of information provided. Show
the impact of each item affected on financial statements by the analysis of stated issues.

SOLUTION
As per Ind AS 8 ―Accounting Policies, Accounting Estimates and Errors, prospective application of a change in
accounting policy has to be done since retrospective application is not practicable.

Property, plant and equipment at the end of 31st March, 20X2:
Rs.
As per the engineering survey:
Valuation of PPE 17,000

Estimated residual value 3,000
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