Prior period item adjustment

Question

iWe have a insurance expenses related to FY 2011 and this expenses is booked under advance
instead of insurance exp....In order to settled advance how should we treat the insurance expenses related to FY 2011 during the year 2014.

Please suggest me how to treat the entry along with journal entry and date of entry and how to reflect in the balance sheet (how to show in balance sheet) as comparative information.

Answer 1

Is this amount material considering your expenses? If this is not material just account for this year (debit advance & credit insurance expense). If this is material the you need to adjust accounts as a prior period error.

IAS 8.42 - Subject to paragraph 43, an entity shall correct material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by:
(a) restating the comparative amounts for the prior period(s) presented in which the error occurred; or
(b) if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

In your case IAS 8.42(b) will apply.

You can pass following entries affective current financial period.
Debit - Retained earnings
Credit - Advance account

Now when you prepare the comparative of the last year, show the correct figures. That means reduce the advance account by that amount and increase the retained earnings by the same amount.