A company which has always prepared financial statements to 31 December each year prepares its first IFRS financial statements for the year to 31 December 2019. These statements show comparative figures for the year to 31 December 2018.

At the beginning of a reporting period, a business had cash of £1m and capital of £1m. The cash was spent on acquiring inventory which was all sold during the accounting period for £1.25m. There were no other transactions.

Determine the present values of the amounts listed below. The applicable“discounting rate” is 8 % (i.e. money can be invested at an interest rate of 8 % per annum).

A company began trading on 1 January 2017, preparing accounts to 31 December each year. As at 31 December 2019, the company adopted a new accounting policy with regard to the measurement of inventories.  If the new policy had been applied in previous years, the company’s inventory at 31 December 2017 would have been £150,000 higher than  the amount originally calculated. Similarly, the inventory at 31 December 2018 would have been £400,000 higher than the amount originally calculated.

Whilst preparing its financial statements for the year to 31 December 2019, a company discovers that (because of an arithmetic error) its inventory at 31 December 2018 was overstated by £50,000. This is a material amount.