Beruflich Dokumente
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Prior period errors are omissions and misstatements in the entity’s financial statements for one or more periods arising
from a failure to use or misuse of reliable information that:
a. Was available when financial statements for these periods were authorized for issue.
b. Could reasonably be expected to have been obtained and taken into accounts in the preparation and presentation
of those financial statements.
Types of errors.
1. Statement of financial position errors – are errors that affect the statement of financial position or real accounts only,
meaning, improper classification of an asset, liability and capital account.
2. Income statement errors – are errors that affect the income statement or nominal accounts only, meaning, the
improper classification of revenue and expense account.
3. Combined statement of financial position and income statement errors – are errors that affect both the financial
statement of financial position and income statement because they result in a misstatement of net income.
Counterbalancing errors – are errors which, if not detected, are automatically counterbalanced or corrected in the
next accounting period.
This error normally include the misstatement of the:
a. Inventory, including purchases and sales.
b. Prepaid expenses
c. Accrued expenses
d. Deferred income
e. Accrued income
Noncounterbalancing errors – are errors which, if not detected, are not automatically counterbalanced or corrected
in the next accounting period.
This error normally include the misstatement of the:
a. Depreciation
b. Amortization
ILLUSTRATION 01:
An entity reported net income for 2014 P3,000,000, 2015 P4,000,000, and 2016 P3,500,000. The following errors were
discovered at the end of 2016:
1. December 31, 2014 inventory, overstated P 120,000
2. December 31, 2016 inventory, understated 210,000
3. December 31, 2014 accrued interest payable, understated 40,000
4. December 31, 2016 accrued interest payable, overstated 90,000
5. Depreciation for 2015, understated 180,000
6. Depreciation for 2016, overstated 30,000
Required: Compute for the adjusted net income and the under/overstatement in retained earnings and working capital on
2014, 2015 and 2016.