Reference no: EM131181218

Question 1:

XYZ Company started a business on January 1, 2001. It was the policy of the business to treat the capital expenditures as an asset in the Balance Sheet; the company followed this procedure for first three years of its commencement. The prevailing policy has been changed and now they have decided to write off the capital expenditures as they incurred from year 2003.

Development expenditures incurred and capitalized since the year of its establishment are Rs. 675,000 for the year 2000; Rs. 980, 000 for the year 2001; and Rs. 1250,000 for the year 2002. Rs. 315,000 and Rs. 560,000 were transferred from capitalized development expenditure account to income statement for the year 2001 and 2002 respectively.

The 2002 account showed the following:

Retained earnings b/f	Rs. (000) 6375
Retained earnings after the year	4631
Retained earnings c/f	4631
	11006

The retained profit for 2003 after charging the actual development expenditure for the year was Rs5, 040,000.

Required:

Show how the change in accounting policy should be reflected in the reserves in the company's 2003 accounts in accordance with the IAS 08.

(Ignore taxation)