IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

**Section B - Case 2** *PharmaNova is a pharmaceutical company with a financial year end of 31 December 20X5. On 15 December 20X5, a patient filed a lawsuit against PharmaNova for $2 million, claiming side effects from a drug. Legal counsel advises there is a 60% probability PharmaNova will lose the case and have to pay the full $2 million. On 28 December 20X5, the board decided to close a research facility. A detailed formal plan was drawn up, but it was not communicated to the affected employees until 5 January 20X6. The estimated closure costs are $500,000. On 10 January 20X6, a major wholesale customer went bankrupt. The customer owed PharmaNova $300,000 at 31 December 20X5. On 1 February 20X6, PharmaNova decided to change its inventory valuation method from FIFO to Weighted Average to better reflect its business model.* **Question:** How should the change in inventory valuation method be accounted for in the 20X5 financial statements?