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EXAMPLE 1 (Change in accounting policy) The following information is an extract from the trial balance of Elegance Ltd at 30 September 20.12. The company is involved in the manufacturing and selling of furniture and curtains. Sales of furniture Sales of curtains Cost of sales Interest received on staff loans Retained earnings at beginning of year Loss on sale of machinery (Tax loss of machinery: R3 000) Advertising expenses Bad debts written back (SA Revenue Service: R6 200) Loss as a result of the expropriation of land (Not deductible for tax purposes) Current tax expense Dividends paid Additional information 80 The value of inventory based on the two methods was as follows: At 30 September LIFO FIFO 20.09 R 20.12 Dr/(Cr) R (452 000) (145 000) 225 580 45 000 48 500 (4 800) (223 350) 3 000 24 000 (6 200) 20.10 R 62 500 67 000 37 880 99 518 25 000 1. Assume that the calculation of the current tax expense is correct in the trial balance above. 2. After the aforementioned information had been obtained from the accounting records of the company, the directors of the company decided to change the accounting policy with respect to the valuation of inventory. Elegance Ltd previously accounted for its inventory on the last-in, first-out (LIFO) method, but it has changed its policy of accounting for inventory to the first-in, first-out (FIFO) method in order to comply with the requirements of IAS 2, Inventory, that disallows the use of the LIFO method of inventory valuation. 20.11 Dr/(Cr) R 20.11 R (300 000) (65 000) 221 000 (150 000) FAC3761/102 32 000 37 500 15 000 36 120 10 500 20.12 R 26 000 33 700 3. Assume that all amounts are material and that the tax rate has remained unchanged at 28%. The SA Revenue Service will not reopen the previous years' tax assessments, but the new policy will be accepted for tax purposes. 4. The implications of capital gains tax and dividends tax should be ignored. REQUIRED Prepare the statement of profit or loss and other comprehensive income (expenses by function), the statement of changes in equity (only retained earnings section) and notes thereto of Elegance Ltd for the year ended 30 September 20.12 in accordance with International Financial Reporting Standards.

The following information is an extract from the trial balance of Elegance Ltd at 30 September 20.12. The company is involved in the manufacturing and selling of furniture and curtains. 80 Additional information 1. Assume that the calculation of the current tax expense is correct in the trial balance above. 2. After the aforementioned information had been obtained from the accounting records of the company, the directors of the company decided to change the acsounting policy with respect to the valuation of inventory. Elegance Lid previously accounted for its inventory on the last-in, first-out (LIFO) method, but it has changed its policy of accounting for inventory to the first-in, first-out (FIFO) method in order to comply with the requirements of IAS 2, Inventory, that disallows the use of the LIFO method of inventory valuation. The value of inventory based on the two methods was as follows: 3. Assume that all amounts are material and that the tax rate has remained unchanged at 28%. The SA Revenue Service will not reopen the previous years' tax assessments, but the new policy will be accepted for tax purposes. 4. The implications of capital gains tax and dividends tax should be ignored

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