Question

Question 4 – Accounting Changes

Complete the following chart – use check marks

	Change in Estimate	Change in Policy	Error	Retrospective Statement (Past)	Prospective Statement (Future)
Change from weighted average method to FIFO for inventory
Management decided the equipment will last 12 years and not the original 10
Missing expenses were found after the final financial statements were produced

Answer 1

Please note the following

Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. If there is no specific transition provision applicable, the change in policy is applied retrospectively, CHange in inventory valuation method is not just a change in it carrying amount. Hence it amounts to change in accounting policy.

Accounting estimate is An adjustment in the carrying amount of an asset or a liability; or the amount of the periodic consumption of an asset, that results from assessment on the basis of present and future conditions. It requires Prospective treatment, Change in useful life of an asset is change in accounting estimate and thus it requires prospective treatment.

Errors are ommissions or misstatements in financial statement arising from failure to use or misuse of reliable information that was available or could have been available. Prior period errors require retrospective treatment