Accounting Changes

Question 1

Would a change from Completed Contract to Percentage of Completion be a change in accounting principle- or a change of estimate?

How would it be applied?

Answer 1

A change of principle.

Applied retrospectively.

Question 2

Would a change from straight line depreciation to double declining balance be a change in accounting principle or a change in estimate?

How would this change be applied?

Answer 2

Change in depreciation method would be a change in accounting estimate.

It is applied prospectively.

Question 3

What are the requirements for a prior period adjustment?

Answer 3

Effect is Material

Is identifiable in Prior Period

Couldn’t be estimated in Prior Periods

Question 4

How does an inventory error effect the financial statements?

Answer 4

Effect on Ending Inventory : Effect on Net Income

If one is overstated- both overstated. If one is understated- both understated.

Misstating inventory corrects itself after TWO periods.

Question 5

How is a change in entity recorded?

Answer 5

Applied retrospectively.

All prior periods presented for comparative purposes must reflect the change

Footnote disclosures must be made

Changing to Consolidated Statements