Generally accounting policies should be applied consistently, unless a change is required by a new or revised accounting standard or the new policy provides more appropriate presentation. Changing an accounting policy to be consistent with that of competitors is not a convincing reason.

Changing from FIFO to AVCO will cause a reduction in the value of the closing inventory at 30 September 2010 effectively reducing, rather than increasing, both the valuation of inventory and reported profit. The argument of the assistant accountant that the profit will increase by changing the said policy is not true.

A change in accounting policy must be accounted for as if the new policy had always been in place (retrospective application). If Turnshill wishes to change the accounting policy in the year to 30 September 2010, the financial impact is :-

Opening inventory reduction(lead to profit increase) ($15 million $13.4 million) $1.6m

Closing inventory reduction(lead to profit decrease) ($20 million $18 million) ($2.0m)

Net decrease in profit in the year to 30 September 2010 ($0.4m)

This adjustment would be shown in the statement of changes in equity.