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Additionally, there might be a cumulative effect of errors committed in the past that
may necessitate revising previously issued financial statements. IAS 8 (Accounting
Policies, change in Accounting Estimates and errors) requires the entity to correct prior
period errors retrospectively. This could include errors in the recognition, measurement,
presentation, or disclosure in financial statements caused by mathematical mistakes,
mistakes in applying the principle of the double-entry system, or the oversight of facts
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existing when the financial statements were prepared. In such cases, the prior period
financial statements should be restated. The restatement requires the accountant to:
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(a) Reflect the cumulative effect of the error on periods prior to those presented in the
carrying value of assets and liabilities as at the beginning of the first period.
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(b) Make an offsetting adjustment to the opening balance of retained earnings for that
period.
(c) Adjust the financial statement for each prior period presented, to reflect the error
correction.

Example 9.7
On July 31, 2022, the trial balance of Msusa & Company showed a discrepancy of
TZS 1,000,000. This difference was recorded in the suspense account. Subsequently,
the following errors were identified:

January 1: Sales were overstated by TZS 700,000.
February 2: Rent expenses were understated by TZS 800,000.
May 5: Cash received from Chombo of TZS 500,000 was only recorded in the
cash book.
June 6: A purchase of TZS 950,000 was incorrectly entered in the creditors
account and purchases account as TZS 590,000.
Required:
(a) Prepare a general journal to correct the above identified errors.
(b) Balance the suspense account.
(c) Prepare a corrected income statement, assuming Msusa & Company declared a
profit of TZS 3,200,000 up to July 2022.
(d) Extract the statement of financial position to reflect the corrections of the
identified accounting errors

Student’s Book Form Five
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