[marun]

Whitebutt Boats builds luxury ocean-going yachts which generally take up to 3 years to construct and are worth $50 million each. The company normally takes out a loan to finance the initial construction phase for each yacht. Interest on those loans has been treated as an expanse with $750000 written off over the last 5 years. In the current year ended 30 June 2010, the company changed its accounting policy with respect to interest and now capitalizes the interest against the cost of each yacht as allowed by AASB 123 Borrowings Costs. Amounts of $40000 and $22000 were capitalized against two yachts on which construction started this year but no adjustments have been made for yachts under construction at the beginning of the year. The new accounting policy and its impact have been disclosed in the notes to the financial statements for the year ended 30 June 2010.


Solution:
Just gIve a description about the AASB 108 and the new accounting policy with respect to the requirements


ANSWER: AASB 108 requires a voluntary change in accounting policy to be applied retrospectively and adjustments to be made against the opening balance of equity in the earliest prior period presented in the financial statements. AASB 1001 also requires changes to be applied retrospectively. However, the cumulative financial effect of the change up to the end of the preceding year must be recognised in the Statement of Financial Performance in the current year (the year in which the change is made). AASB 108 (paragraph 13) requires an entity to apply consistent policies for similar transactions unless an AASB requires or permits categorisation of transactions to which different policies may be appropriate. Where this occurs, accounting policy must be applied consistently to each category.
Here AASB 108 requires voluntary changes in accounting policy to be recognised directly equity and accounted for retrospectively, unless it is impracticable to do so; Prior period errors to be corrected by restating prior period information, unless it is impracticable to do so; Changes in accounting estimates to be recognised in the Profit and Loss Statement and accounted for prospectively. Specific disclosures in relation to changes in accounting policies, prior period errors and changes in accounting estimates. Therefore, The Company needs to consider the impact of the change of the policy not only on current and future financial periods but also on previous periods. Prior period’s errors need to be rectified by restating the previous period information, unless it is impracticable to do so. AIFRS applies to the transaction, other event or condition; and specific disclosures in relation to changes in accounting policies, prior period errors and changes in accounting estimates. A change in accounting policy on the initial adoption of an AIFRS to be accounted for: In accordance with the specific transitional provisions in that AIFRS; or where no specific transitional provisions exist, retrospectively, unless it is impracticable to do so.

[tickle]

Okay... marun, I don't know what you are wanting us to do ? If its homework, we don't do that.

Tick

[marun]

OK no worries... thankyou
But I just want to know that the way I did I right or not so please just let me know... that will be great help and I can do better and write better answers...