Brockton Ltd. began applying IFRS in 20X8. One of the necessary adjustments was to adjust past inventory records to remove warehousing expenses from the balances of the ending inventories for 20X5, 20X6, and 20X7, and restate earnings. The pre adjustment inventory balances and the warehousing costs contained therein were as follows:

Required:
1. Explain the impact this change will have on the company’s earnings. Assume an income tax rate of 30%.
2. Prepare the adjusting entry (entries) that Brockton will need to make on its books in 20X8 to reflect the above information.

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Year 20X7 20X6 20X5 Balance, 31 December $800,000 680,000 720,000 Warehousing Costs $30,000 18,000 25,000