Accounting Policies, Depreciation and Intangible Assets

Question 1
a) The circumstances under which an entity can voluntary change its accounting policies include:
 It is required by standard
 It makes the financial statements provide a more reliable and accurate portrayal of
financial statements(Jiang, Nanda & Xiao, 2014)
b) When the entity changes its accounting policy retrospectively from cost to revaluation
model the entity will adjust any increase the carrying amount as a consequence of the
revaluation. This revaluation increase will be included in the profit and loss statement and
subsequently contributed in equity under revaluation surplus. If there is a decrease , the
decreased amount will be reflected in the statement of profit or loss( Bolívar & Galera, 2016).
If the machine changes, the residual value and useful life it is expected that the
organization will provide for a retrospective adjustment in terms of the revised depreciation Any
changes that accrue to the organization will be applied retrospectively (Istrate, 2015).The
opening balance if cash affected component of equity need to be presented and the other
comparative amounts will be disclosed as if a new policy has been acquired (Hu, Percy &
Yao,2015).
c) Journal entries
Date Particulars Amt($) Amt($)
1.7.10 Machine a/c Dr
To Cash a/c
800000
800000

(being machine bought)
30.6.1
1
Depreciation a/c dr
To machine a/c
(being depreciation provided)
75000
75000
30,6.1
2
Depreciation A/c dr
To machine a/c
(being depreciation provided)
75000
75000
30.6.1
3
Depreciation A/C dr
To machine a/c
(being depreciation provided)
75000
75000
30.6.1
4
Depreciation a/c dr
TO machine a/c
(being depreciation provided)
75000
75000
30.6.1
4
Machine a/c dr
To Revaluation surplus a.c
(being revaluation surplus adjusted)
30000
30000
30.6.1
5
Depreciation a/c dr
To machine a/c
(being depreciation provided)
80000
80000
30.6.1
6
Depreciation a/c dr
To machine a/c
(being depreciation provided)
80000
80000
30.6.1 Depreciation a/ c dr 80000

7 To machine a/c
( being depreciation provided)
80000
30.6.1
8
Depreciation a/c dr
To machine a/c
(being depreciation provided)
80000
80000
Workings
Calculation of depreciation- cost- residual value/ useful life= 800000- 50000/ 10= 75000
Amount transferred to revaluation surplus- carrying amount – revalued figure
- 530000- (800000- 75000*4)
= 30000
Revised depreciation as a result of revaluation - 530000- 50000/6 = 80000
Question 2
a) The warranty obligation can be best recognized as a provision for the best estimate of the
costs of making good under the warranty services that the construction company expects to
provide in the month of June 2018(Steenkamp & Steenkamp, 2016).
b) A provision for contingent liabilities should be recorded in the accounts. This recognition
can only be done when thee is a probability that the future event will occur and the amount of
the liability can be estimated in a reliable manner. This means that a loss would be recorded. A
liability would be established in advance of the settlement. In this case the construction
company has predicted the exact probabilities that it would be able to deliver the service within