Consider the following scenarios: Case A: The company capitalized costs to inventory that should not have been. As a result, the selling cost of inventory is now lower than the recorded cost. Case B: The selling cost of inventory has declined. The selling price is now lower than the amount capitalized in the inventory account Case C: The company used the FIFO method to account for inventory, but, after review of their competitors, determined that average cost is the standard and a change is made. Case D: The company has made a mandatory change to how it accounts for certain assets, due to amendments to the accounting standard. Case E: The company has begun using data analytics to understand sales patterns and customer returns. As a result of the analysis, the company believes it has recognized too high of a provision for returns over the past 2 years, and the liability is now overstated. Required: Identify whether this is a change in accounting policy, estimate or an error, Determine whether retrospective or prospective treatment is required. Case A Case B Case C Case D Case E Change in estimate, accounting error or change in policy? Prospective or retrospective application?
Consider the following scenarios: Case A: The company capitalized costs to inventory that should not have been. As a result, the selling cost of inventory is now lower than the recorded cost. Case B: The selling cost of inventory has declined. The selling price is now lower than the amount capitalized in the inventory account Case C: The company used the FIFO method to account for inventory, but, after review of their competitors, determined that average cost is the standard and a change is made. Case D: The company has made a mandatory change to how it accounts for certain assets, due to amendments to the accounting standard. Case E: The company has begun using data analytics to understand sales patterns and customer returns. As a result of the analysis, the company believes it has recognized too high of a provision for returns over the past 2 years, and the liability is now overstated. Required: Identify whether this is a change in accounting policy, estimate or an error, Determine whether retrospective or prospective treatment is required. Case A Case B Case C Case D Case E Change in estimate, accounting error or change in policy? Prospective or retrospective application?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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subject-Accounting
Transcribed Image Text:Consider the following scenarios:
Case A: The company capitalized costs to inventory that should not have been. As a result, the selling cost of inventory is now lower
than the recorded cost.
Case B: The selling cost of inventory has declined. The selling price is now lower than the amount capitalized in the inventory account.
Case C: The company used the FIFO method to account for inventory, but, after review of their competitors, determined that average
cost is the standard and a change is made.
Case D: The company has made a mandatory change to how it accounts for certain assets, due to amendments to the accounting
standard.
Case E: The company has begun using data analytics to understand sales patterns and customer returns. As a result of the analysis,
the company believes it has recognized too high of a provision for returns over the past 2 years, and the liability is now overstated.
Required:
Identify whether this is a change in accounting policy, estimate or an error. Determine whether retrospective or prospective treatment
is required.
Case A
Case B
Case C
Case D
Case E
Change in estimate, accounting error
or change in policy?
Prospective or retrospective
application?
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