Identifying Accounting Changes Sometimes a business entity may change its method of accounting for certain items.
Identifying Accounting Changes
Sometimes a business entity may change its method of accounting for certain items.
The change may be classified as a change in accounting principle, a change in
accounting estimate, or a change in reporting entity. Listed below are two
independent, unrelated sets of facts relating to accounting changes.
Situation 1:
A company determined that the
too long to fairly match the cost of the fixed assets with the revenue produced. The
company decided at the beginning of the current year to reduce the depreciable lives
of all its existing fixed assets by five years.
Situation 2:
A company decides in January 2011 to adopt the straight-line method of depreciation
for plant equipment. This method will be used for new acquisitions as well as for
previously acquired plant equipment for which depreciation had been provided on
an accelerated basis.
Required:
For each of the preceding situations, provide the information indicated below.
Complete your discussion of each situation before going to the next situation.
a) Type of accounting changes
b) Manner of reporting the change under current GAAP, including a discussion
where applicable, of how amounts are computed.
c) Effects of change on the
statement.
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