the solving process of a. b

uestion 2 (25 marks) You are the senior accountant at Smarty Ltd. (Smarty). While proof-reading the financial statements for the year ended 31 December 2018, Henry, a trainee accountant, has identified certain changes / erors but he is uncertain wh represent a change in accounting policy, a change in accounting estimate or a prior-year error. correction of 1 . Previously, Smarty accounted for its property. plant and equipment using the historical cost basis. In the financial year 2018, however, due to the rapid appreciation in property market value, Smarty has adopted the revaluation model of HKAS 16 to account for its non-current assets. The management believed such a change would provide more relevant information for the users of the financial statements in making investment decisions 2. Some of the inventories sold in 2018 were erroncously excluded from the closing inventories at 31 December 2017. As a result, the closing inventories in the financial statements for the year ended 31 December 2017 were understated by $80,000. The corporate tax rate is 20%. This amount is deemed to be material as it represents more than 10% of the profit for the year 2017. Required: (a) Briefly explain the differences between a change in accounting policy, a change in (15 marks) (b) With reference to your answer in (a), briefly discuss how you would classify the (10 marks) accounting estimate and a correction of prior-year erro. captioned changes for the above events (1) & (2)