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How to Correct an Accountant's Prior Error

Greeting Sir.....

I am having doubts on how to Account for Expenditure/plant and equipment current year that was recorgnised as an expense to prior year.....

Here goes the ques...Its in compliance to IFRS

In preparing the 20x5 Financial statements of J co Ltd, the accountant discovered that $50,000 of expenditure in august 20x3 has been incorrectly treated as an expense for the financial year ending 30 june 20x4. The expenditure should have been treated as plant and equipment.
Advice, how accountant should correct for this error when preparing thr 20x5 plant and equipment statement...??

My Understanding

-is that expense must be deleted in exp....therefore describing in its notes the reasons for its cancellation due to meeting the nature (not meeting the rev. and capital expenditure))

-Also to INSERT PPE into Non-Current assets of balance sheet......stating the reason in the notes (probable, reliability, economic benefits n stuff....))

-the main confusion is, should i revalue the amount due to a 2 yr gap in between and is there any scientific way to account for the $50,000?

Regards....

Sarnit from Fiji
Sarnit! It is the nature of human being that he or she does mistake because we want to learn by practical. Before telling your problem's solution, I want to tell that today, my elder brother started to repair electric button in our house. He do not know the work of electricity. So, he just guessed for linking of two wires and result was burning of some wire of our house. Power lost. After this, a big bill of expert electrician's service has been paid. From this, I educate  that we can not stop others for doing mistakes. But, we learn a new lesson from other's mistakes. Enjoy this learning of life!

In your case, mistake was done by prior accountant because he did not know the difference between revenue expenditure and capital expenditures. Revenue expenditure decrease our capital but capital expenditure increases our capital. Before rectification of this error, we understand this error's effect.

1. # Due to this error, our profit was shown less in that financial year. It means our capital is showing less because we add less profit with same amount.

2. # Our financial position is showing less from two years with same amount.

3. # We did not calculated depreciation from 2 years. Due to this, profit and loss account and balance sheet are not showing correct result.

Rectification of Error

In the books of 2005, you will pass following rectification of this error entry

Plant and Machinery Account Dr.

Capital Account  Account or Reserve and Surplus Account Cr.

{ You can not show plant and machinery account Dr. to revenue expenditure account because that revenue account was closed and its affect has absorbed in capital account. This entry is just like your recover your lost capital.  In footnote, you can tell that we deduct plant and machinery account as revenue expenditure and same amount has been deducted from capital. You have to show amount after deducting two years depreciation. }

Important : You have to calculate net effect of income tax of this mistake. Either you have to pay or you have to apply for refund of income tax due to this. 

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Accounting Education: How to Correct an Accountant's Prior Error
How to Correct an Accountant's Prior Error
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Accounting Education
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