THE INSTITUTE OF FINANCE MANAGEMENT
IAS 8: ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND
ERRORS
Tutorial Questions 2025/2026
1. Define changes in accounting estimates. Provide examples and discuss how they should be accounted
for.
2. How should an entity disclose changes in accounting estimates in its financial statements?
3. Differentiate between errors and changes in accounting estimates.
4. What are the steps to correct material errors in financial statements according to IAS 8?
5. How should an entity disclose changes in accounting policies in its financial statements?
6. Amani Ltd. has identified an error in the recognition of revenue in its financial statements for the previous
year. The error was due to a misinterpretation of contractual terms. Explain the steps Amani Ltd. should take to
correct this material error in accordance with IAS 8.
7. JIRANI Company faces uncertainty regarding the collectability of a significant accounts receivable balance.
Initially, the provision for doubtful debts was estimated at 5% of the accounts receivable balance. Due to
recent economic changes, management believes a 10% provision is now more appropriate. How should
JIRANI Company account for this change in the provision for doubtful debts under IAS 8?
8. During a break-out session I heard someone talking about accounting policies and accounting estimates.
He said that when there’s a change of these items sometimes the change is made retrospectively and
sometimes it’s made prospectively.
Required:
a) Please explain the difference between an accounting policy and an accounting estimate and give an
example of each.
b) Please explain the difference between retrospective and prospective adjustments and how this applies
to accounting policies and accounting estimates.
Question 9
An entity procures a second-hand machine and determines the depreciation charge based on the expected life
of the machine. However, at a future period, the entity realizes that the estimated life of the machine does not match
the original estimate. As a result, there is a change in the rate of depreciation from 10% to 12%.
Required: Can this change in the depreciation rate qualify for retrospective restatement?
Question 10
The original cost of equipment is TZS115 million and an estimated useful life of ten years with a nil residual
value. It is depreciated on a straight-line basis annually that comes to TZS11.5 million p.a. The carrying amount of
the equipment after three years will be TZS 80.5 million. It was decided in the fourth year that the remaining useful
life of the equipment is only three years and not seven years.
Required: Recalculate the depreciation per annum and state the accounting treatment of the asset in the books.
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Question 11
IAS 8: Accounting Policies, Change in Accounting Estimates and Errors lays down criteria for selection of
accounting policies and prescribes circumstances in which an entity may change an accounting policy. The standard
also deals with accounting treatment of changes in accounting policies, changes in accounting estimates and
correction of prior errors.
You are the Financial Controller of Mtokeambali Ltd. The company began on 1st January 2021 and is currently
involved in the preparation of financial statements for the year ended 31st December [Link] have recently
attended (CPA)(T) review classes for the May 2025 NBAA Examination.
Your review of financial records shows that on 1st January 2024, the company had 50 million TZS.1,000 ordinary
shares in issues. On 30th June 2024, Mtokeambali Ltd. issued 10 million 10% TZS.1,000 irredeemable
preference shares at par. There have been no other changes in share capital in the last five years. The
appropriate dividend in respect of these shares was paid on 31 st December 2024. A property revaluation at the
year-end gave s surplus of TZS.250,000,000.
During the year ended 31st December 2024, Mtokeambali Ltd. changed its accounting estimates for
depreciation in relation to the depreciation of property, plant and equipment. The depreciation charges calculated
using the previous depreciation method are shown in the company’s financial statement for the three years ended
31st December 2023 as follows:
TZS Million
Year to 31st December 2021 690
Year to 31st December 2022 810
Year to 31st December 2023 870
Assuming the new depreciation method had been applied in previous years, depreciation charges would have
been:
TZS Million
Year to 31st December 2021 1,170
Year to 31st December 2022 930
Year to 31st December 2023 690
An extract from Mtokeambali Ltd’s Statement of Profit or Loss and other comprehensive income for the year to 31 st
December 2024 (before making any adjustments to reflect the change in accounting estimates for the year 31st
December 2023) is as follows:
2024 TZS ‘Million’ 2023 TZS ‘Million’
Profit before depreciation 7,530 7,350
Depreciation of property, plant and equipment 570 870
Profit before taxation 6,960 6,480
Taxation 2,088 1,944
Profit after taxation 4,872 4,536
2
Other Comprehensive Income
Gains on property revaluation 250
Mtokeambali Ltd’s retained earnings were reported as TZS 8,829,000,000 at 31st December 2023. No dividends have
been paid in any year. The company pays tax at 30% on the profit.
Required:
(a) Present the extract from the statement of Profit or loss and other comprehensive income so as to reflect the
change in accounting estimates, in accordance with IAS 8
(b) Compute Mtokeambali Ltd’s retained earnings at 31st December 2024 and the restated retained earnings
as at 31st December 2022 and 2023
(c) Evaluate how Statement of Changes in equity for the year ended 31st December 2024 should be presented
in the company financial statement.
Question 12
(a) IAS 8 provides steps to be followed when selecting accounting policies to apply.
Required:
Following the steps of selecting accounting policies as per IAS 8. Fill in the blanks for items (i) to
(v) by writing the answers in your booklet.
YES
Step 1: (i)………….. (ii)………………
NO
YES
Step 2:(iii)………….. (iv)………………
NO
Step 3:(v)………….
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(b) Given below is the summary of accounting treatment of changes in accounting policy according to IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors
Required:
Fill in the blanks for items (i) to (v) by writing YES or NO to indicate a proper sequence of
accounting treatment.
Is the change due to initial application
of an IFRS?
(i)…… (ii)……
Does the IFRS indicate a This is voluntary change
specific transitional
accounting method?
(iii)…… (iv)…… (v)……
Apply the specific Apply the change in
transitional provisions accounting policy
Retrospectively
Question 13
ABC LTD until now has valued inventory using LIFO method. However, following changes to IAS 2
Inventories, the use of LIFO method has been disallowed. Therefore, management of the company intends to
use FIFO method for the valuation of the company's stock.
Following are extracts of ABC LTD's most recent financial statements before the application of FIFO method.
Statement of Financial Position as at 31 December 2024
2024 2023
“000” “000”
Current Assets
Cash and Bank 6,000 4,000
Short Term Investments 5,000 8,000
Inventory 10,000 12,000
21,000 24,000
Income Statement for the year ended 31 December 2024
2024 2023
“000” “000”
Cost of Sales
Opening Inventory 12,000 8,000
4
Purchases 48,000 44,000
Closing Inventory (10,000) (12,000)
50,000 40,000
Statement of Changes in Equity for the year ended 31 December 20X24
2024 2023
“000” “000”
Retained Earnings
Opening Reserves 40,000 30,000
Net Profit 30,000 20,000
Dividend (10,000) (10,000)
Closing Reserve 60,000 40,000
Management estimates that the value of its inventory using FIFO method would be as follows:
2024 2023 2022
“000” “000” “000”
Inventory 12,000 13,000 10,000
Management further believes that the valuation of inventory using FIFO method for periods prior to 2022 would
produce materially similar results.
Required: Present the extract from the financial statements to reflect the change in accounting policy, in
accordance with IAS 8