When an inventory costing formula is changed, the change is required to be applied:
A) prospectively and the adjustment taken through the current profit or loss;
B) retrospectively and the adjustment taken through the opening balance of retained earnings;
C) prospectively and the current period adjustment recognised directly in equity;
D) retrospectively and the adjustment recognised as an extraordinary gain or loss.

Question

Quizplus · Accepted Answer

When an inventory costing formula is changed, accounting standards typically require the change to be applied retrospectively. This means that past financial statements are adjusted as if the new method had always been used. The adjustment is reflected in the opening balance of retained earnings, not through the current profit or loss, directly in equity, or as an extraordinary gain or loss. This approach ensures comparability across periods.

When an Inventory Costing Formula Is Changed, the Change Is