Financial Accounting: Estimates, Errors, and Judgments at Woolworths

This report provides a financial accounting analysis focusing on key areas such as changes in accounting estimates, correction of errors, and assumptions made for the future, referencing Woolworths' financial reports and AASB 108. It highlights that changes in accounting estimates, like the useful life of non-current assets, require prospective application and proper disclosure. The report emphasizes the retrospective correction of errors through restatement of prior period amounts or opening balances, with exceptions for impracticability. Furthermore, it addresses the role of judgment in determining the carrying value of financial statement items, including employee benefits, provisions, and recoverable asset values, all of which necessitate adherence to AASB 108 guidelines. Desklib provides access to similar solved assignments and study resources for students.

Running head: FINANCIAL ACCOUNTING
Financial accounting
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1FINANCIAL ACCOUNTING
Table of Contents
Issue 1 – Changing the accounting estimates.............................................................................2
Issue 2 – Correction of errors.....................................................................................................2
Issue 3 – Assumption made for future.......................................................................................3
Reference....................................................................................................................................4

2FINANCIAL ACCOUNTING
Issue 1 – Changing the accounting estimates
Accounting estimates are changes on regular basis as the new information generates.
Changes in the accounting estimates need prospective application. It can be identified from
the annual report of Woolworths for the period ended 2018 that –
 The assessment for useful life of the non-current assets changes owing to actual useful
life is less than original estimate for the useful life (Woolworthsgroup.com.au 2019).
 Depreciation expenses reported in the prior period is not changed however remaining
carrying amount of asset is written off over the less period of useful life.
Hence, the company is required to make disclosures in accordance with Para 39 and
40 of AASB 108 (Aasb.gov.au 2019)
Issue 2 – Correction of errors
Errors may take place due to misinterpretation of the information, mathematical error,
fraud or mistake in application of accounting policies. The errors discovered shall be
corrected retrospectively through –
 Restating comparative amount in prior period or
 If error took place before earliest prior period, through restating opening balance
(Woolworthsgroup.com.au 2019).
Exception to the above is when it is impracticable for determining the cumulative
impact, at beginning of current period of the error on all the prior periods, the company must
restate comparative information for correcting error prospectively from earliest practicable
date. Hence, Woolworth shall disclose the prior period error and give effect to the same in
accordance with Para 39 – 43 of AASB 108 (Aasb.gov.au 2019)

3FINANCIAL ACCOUNTING
Issue 3 – Assumption made for future
Judgement is applied while determining carrying value of any item in financial
statement. For instance, estimation regarding obsolescence of inventory with policy of
inventory revaluation may cause material adjustment to carrying value of assets and liabilities
within the next financial year (Woolworthsgroup.com.au 2019). Generally it includes –
 Long term benefits of employees like superannuation obligation
 Provisions subject to future outcome of the litigation in the progress
 Recoverable value of the specialised classes of the plant, properties and equipments
Hence, Woolworth shall make the judgements in accordance with Para 11-12 of
AASB 108 (Aasb.gov.au 2019)

4FINANCIAL ACCOUNTING
Reference
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB108_08-15.pdf [Accessed 29 May
2019].
Woolworthsgroup.com.au. 2019. [online] Available at:
https://www.woolworthsgroup.com.au/icms_docs/195396_annual-report-2018.pdf [Accessed
29 May 2019].