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Hi

A company is adopting IFRS for the first time and preparing the first IFRS financial statements for the year ended 7 July 2019. During the transition to IFRS, as per the advice of the consultants management changes the depreciation policy for property plant and equipment (PPE).

My question:
Should the change in the depreciation policy affect the PPE values as at 7 July 2018 (the comparative period) and as at 8 July 2017 (the opening statement of financial position)?

It depends on the reason of the change, it the old policy is not acceptable under IFRS, then you need to apply the new one in the opening statement of financial position, i.e. apply it retrospectively

It a change in depreciation rates- an accounting estimate.

I was just reading IFRS 1
Para 4 says
Estimates
An entity’s estimates in accordance with IFRSs at the date of transition to IFRSs shall be consistent with estimates made for the same date in accordance with previous GAAP (after adjustments to reflect any difference in accounting policies), unless there is objective evidence that those estimates were in error.

My understanding here is the depreciation rates should be as per the previous GAAP and as a result the carrying amount of PPE at the date of transition should not be affected for the change in the rates. Means the change in the rates should not be applied retrospectively.

it all depends on whether previous depreciation policy was in line with IFRS - see IFRS 1.IG7

If an entity’s depreciation methods and rates in accordance with previous GAAP are acceptable in accordance with IFRSs, it accounts for any change in estimated useful life or depreciation pattern prospectively from when it makes that change in estimate (paragraphs 14 and 15 of the IFRS and paragraph 61 of IAS 16). However, in some cases, an entity’s depreciation methods and rates in accordance with previous GAAP may differ from those that would be acceptable in accordance with IFRSs (for example, if they were adopted solely for tax purposes and do not reflect a reasonable estimate of the asset’s useful life). If those differences have a material effect on the financial statements, the entity adjusts accumulated depreciation in its opening IFRS statement of financial position retrospectively so that it complies with IFRSs.

Thank you. Very definitive answer.

BTW, why the financial year ends in the middle of a month? That's odd!

Most of the companies use the government's fiscal year-8 July to 7 July

that's interesting! do you know what is the reason for the government's fiscal year to end in the middle of a month? Is it some kind of bank holiday?

I think they don't know the reasons. They inherit it from the king toppled in 1974.

By the way Ethiopia has its own calander. It lapses from Meskerem 1 (September 11) to Puagume 5 (September 10).

The government's fiscal year starts at the start of the 11th month Hamle 01 (July 8). It is kind of weird.

Every taxpayer in the UK reports for the period 6 April to following 5 April.

For monthly earnings you can use the full month of March and end there.

But if you dispose of an asset on 3 April it falls in that year.

https://www.ebs.ltd.uk/news/why-does-th ... 5th-april/

OMG this is so hard to believe

JRSB wrote: ↑09 Jun 2020, 17:19 Every taxpayer in the UK reports for the period 6 April to following 5 April.

just came across

https://www.gov.uk/government/publicati ... r-end-date

They just cancelled that idea as too difficult to implement

maybe they'll revisit this revolutionary idea in XXII century

hehehhe, good old UK tax system. Basically the new year used to be celebrated around the end of March to mark the beginning of Spring. Then the Romans introduced the Julian calendar and changed the civil year to start on the 1st of January. However, during Medieval ages the date was changed once again to 25th March because celebrating the new year on the 1st of January was considered pagan. Beginning of Spring was also a good time for the landlords to collect taxes after the September/October harvests having been sold and consumed during the winter. With the introduction of the Gregorian calendar in the 16th century, the new year was set to start once again on 1 January. The UK adopted the Gregorian calendar only in the 18th century when the difference between the Julian and the Gregorian calendars was of 11 days then. In order not to lose tax revenue in the year of adoption of the new calendar, the begininng of the new year was set for the 6th April under the Gregorian calendar.

And this is my IFRS contribution for the day.

wow! I'm going to add your post to our knowledge base shortly

Here's the official discussion about moving it, if of interest.

https://www.gov.uk/government/publicati ... r-end-date