PROSPECTIVE APPLICATION
A prior period error has to be corrected by retrospective restatement. However, there are exceptions to the application of retrospective application. They are when it is impracticable to determine:
a. The period-specific effects
b. The cumulative effects of the error.

Where it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity is to restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable.

Disclosure
Disclosure required :
⭐ The nature of the prior period error
⭐ Each prior period present to the extent practicable, the amount of the correction :
✅for each financial statement line item effected
✅if mfrs 133 earning per share applies to the entity, for basic and diluted earnings per share.
⭐The amount of correction at the beginning of the earliest prior period presented.
⭐ If retrospective restatement is impracticable for a particular prior period, the circumstances that led to the existence of that condition and description of how and from when the error is corrected.

The financial statements of subsequent periods need not make above disclosure:
MFRS 108 covers following:
🚩Accounting policies:
❤selection of accounting policies.
❤changes in accounting policies
🚩Changes in accounting estimates
🚩Errors

Errors
Prior period errors - errors that may be discovered during the current period
May arise in respect of recognition, measurement, presentation and disclosure of the elements of the financial statements.
MFRS 108 - such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretation of facts and fraud.

MFRS 108 defines prior period errors as omissions from, and misstatements in the entity's financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:
a. Was available when financial statements for those periods were authorised for issue;and
b. Could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Example 6 : Prospective Application
Alpha Bhd has in issue 2 million ordinary shares of RM1 each. During year x2, Alpha Bhd discovered that some products costing RM100,000 that had been sold in year x1 were incorrectly included in closing inventory of year x1. Alpha`s accounting records for year x2 show sales of RM1 million, cost of sales of RM720000(including the error in opening inventory) and expenses of RM110000.

Current and previous years` tax rate is 25%.

In year x1, Alpha`s summarised income statement was:
rm
sales 900000

Cost of sales (450000)

Gross profit 450000

Expenses (100000)

Profit before tax 350000

Tax - 25% (87500)

Profit after tax 262500

Opening retained profit was RM230000.

Required:
Prepare the extracts of the financial statements and comparatives

Answers:

                             x2                          x1

sales 1000000 900000
cost of sales (620000) (550000)

                                  -------------               ----------------
     Gross profit               380000                   350000   
    Expenses                (110000)                 (100000)    
                               ---------------                     ----------------

profit before tax 270000 250000
Tax - 25% (67500) (62500)

                                  ------------------               -----------------------

Profit after tax 202500 187500

                                  ----------------------            -------------------

Answer:

The change in the estimated life is a change in accounting estimate.
The plant would have been depreciated at RM500,000 per annum for years x1 to x4. Therefore, the carrying value on 1 January x5 would be RM3 million. Depreciation for year x5 would be
(RM3,000,000 - RM500,000) / 2 years = RM1,250,000.
Financial statements for the year x1 to x4 are not changed.

Answer:

The brand will be amortised over four years beginning year x7. Amortisation charge will be RM5 million each year.
The carrying amount at 31 December x7 will be RM15 million.
The change from indefinite life to finite life is a change in accounting estimate.

🏁:if it is impractical to quantity the effect in the future period, this fact should be disclosed

Following information is required when entity has not applied new standards or interpretation that has been issued but is not effective yet;
❗ Fact.
‼ known or reasonably estimable information relevant to assessing the possible impact that application of new standard or interpretation will have on the entity's financial statements in the period of initial application.

CHANGES IN ACCOUNTING POLICIES NOT WITHIN MFRS 108.
✅ MFRS 108 applies to all changes in accounting policies except the initial application of a policy to revalue assets with MFRS 116 PPE or MFRS 138 Intangible Assets.
✅ any change in accounting policy, it must be dealt with in accordance with either of these standards and not in accordance with MFRS 108.

NEW POLICY: the fair value model requires the asset to be carried at fair value and the changes in fair value to be taken the the income statement. the asset is not depreciated. on 1 Jan x7 the IP should be measured at fair value (being Rm110 mil)
the different between the cv and fv of Rm16mil will be recognize in the statement of changes in equity. the retained earning brought foward will be increase by RM16mill less tax of Rm3.2 mil.

🔒 Where it is impractible to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity is to restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable.

⭐And adjusting the comparative information from the earliest date practicable