Accounting Changes

Question 1

Retrospective Application:
Prior Periods adjusted
Retained Earnings adjusted
Completed Contract to % Completion
Ex: LIFO to FIFO

Answer 1

Accounting Changes

Question 2

A change of principle.

Applied retrospectively.

Answer 2

Accounting Changes

Question 3

A change in accounting principle.

Applied retrospectively.

Answer 3

Accounting Changes

Question 4

A change in accounting estimate is applied prospectively (going forward).

No backwards adjustment is made.

Answer 4

Accounting Changes

Question 5

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

It is applied prospectively.

Answer 5

Accounting Changes

Question 6

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements.

The correction of the error must be included in the footnotes.

Answer 6

Accounting Changes

Question 7

Effect is Material

Is identifiable in Prior Period

Couldn’t be estimated in Prior Periods

Answer 7

Accounting Changes

Question 8

It is treated as a correction of an accounting error.

Cumulative effect of error gets adjusted to the beginning balances of assets and liabilities in the earliest period presented in the comparative statements

Correction of the error must be included in the footnotes

Answer 8

Accounting Changes

Question 9

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.

Answer 9

Accounting Changes

Question 10

Applied retrospectively.

All prior periods presented for comparative purposes must reflect the change

Footnote disclosures must be made

Changing to Consolidated Statements

Answer 10

Accounting Changes