IFRS Accounting changes
When preparing the 2019 year-end of Clear Mountain Brewery, management made the following decisions:
The company had been using FIFO method to value its inventories up to this point. It now wants to change to weighted average cost to align with industry practice.The following information is available for the year ended December 31:
On January 1, 2016, the company had purchased a patent for $105,0000. The patent was being amortized straight-line over a life of 15 years. At the beginning of 2019, however, CMB determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition.
Inventory, December 31, 2018FIFO $270,000WAC $230,000
Inventory, December 31, 2019FIFO $165,000WAC $140,000
Net Income after tax under FIFO for 2018 $530,000,
Net Income after tax under FIFO for 2019 $460,000
Retained Earnings, December 31, 2018 under FIFO $1,200,000
Clear Mountain Brewery is subject to a 30% tax rate.Any differences in taxes are temporary.
Identify the type of accounting change and the accounting treatment for: (a) and (b) above.[2 marks]
Provide the required journal entry to record the change in (a): [3 marks]
Calculate the change in (b): [3 marks]
Prepare a comparative retained earnings statement for 2019 assuming that the comparative balances could not be restated, and that the patent amortization has not yet been recorded.[8 marks]
