Define and explain the accounting treatment of the following items: Change in accounting estimate Change in...

Define and explain the accounting treatment of the following items:

Change in accounting estimate
Change in accounting principle

Expert Solution

Accounting treatment of change in accounting estimate:

Effect of a change in accounting estimate should be included in the determination of net profits or loss in :

• The period of the change, if the change affects that period only, or
• The period of the change and future periods, if the change affects
both.

A change in an accounting estimate may affect the current period only or both the current period and future periods.

The effect of a change in an accounting estimate should be included in the same revenue or expense classification as was used previously for the estimate.

This is to ensure consistency of financial statements of different periods.

Accounting treatment of change in accounting principle:

Changes in Accounting Prniciple is to be applied retrospectively in the financial statements. This means that entity shall implement the change in accounting principle as though it had always been applied.

Entity shall adjust all comparative amounts presented in the financial statements affected by the change in accounting principle for each prior period presented.

ekkarill92 answered 2 years ago

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