Accounting Estimates and Errors

Craft Ltd is preparing its financial statements for the year ended 31 December 2021. The directors learnt about errors in accounting balances as follows. The following new information became available:

(a) The current tax provision of the prior year was understated by $50,000 based on the final self-assessed tax computation completed in the current year.

(b) The write-down for an item of inventory in the prior year was determined to be overstated. The item was sold in the current year for an amount that exceeded its net realisable value by $20,000.

(c) A machine with a cost of $110,000 and an accumulated depreciation of $20,000 at the end of the prior year was previously estimated to have a residual value of $10,000 and a useful life of ten (10) years. The current year estimates indicated that the residual value was nil and the useful life was eight (8) years. The company used the straight-line method for depreciation. The directors are wondering whether

(1) any adjustments are required, if so,

(2) show the journal entries to effect the change in estimates. In addition,

(3) any disclosure requirements of changes in Accounting Estimates.