Question

1) A change from straight line depreciation to double declining balance depreciation is an example of a change in an accounting principle. (answer True or False)

2) When preparing a statement of cash flows (indirect method), a sale of equity securities is an investing activity. (answer True or False)

Answer 1

1
Ans - False
Change in method of depreciation from straight line to double declining balance method is an example of change in Accounting Estimate. In preparation of financial statements, many times management have to make estimates and if there are any new information which alters old ones, then there may arise need to make changes in previous made estimated and change in method of depreciaiton comes under such change in accounting estimates made by management in prior years.

2
Ans - False
A sale of equity securities comes under Financing activity in a cash flow statement. It is irrelevant whether cash flow is (direct) or (indirect) as issuance of securities and long terms debts are a source of financing for the company and therefore they cannot be included as an investing activity.

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