Accounting Changes/Errors/Estimates Flashcards
After the effective date of FASB ASC 250-10-45-17, any change in a depreciation, amortization, and depletion method must be reported as a change in accounting estimate
Accounting Change in Estimates are corrected prospectively from current period and future periods.
If change in depreciation method, use remaining useful life and carrying value to make new depreciation (pay attention to salvage value).
Distinguishing between a change in an accounting principle and a change in an accounting estimate is sometimes difficult.
Whenever it is impossible to determine whether a change in accounting estimate or a change in accounting principle has occurred, the change should be considered a change in estimate.
Required to make an adjustment to beginning of year Retained Earnings for over expense in prior year, must add back the over expense to RE and deduct the tax on that amount of expense.
A prior period adjustment is an adjustment made directly to the retained earnings account to correct errors made in prior accounting periods. NOT ADJUSTMENTS MADE TO INCOME, EVER.
FASB ASC 250-10-45-18 requires that whenever a change in accounting principle is inseparable from a change in an accounting estimate, the change should be considered as a change in estimate. Changes in estimates are handled prospectively.
What is the financial statement disclosure?
Disclose the effect on income from continuing operations, net income.
Change in Accounting Principle, what is the financial statement disclosure?
Disclose the nature and reason for the change, method of applying the change, description of prior period information retrospectively adjusted done on income from continuing operations, net income.
Change in Reporting Entity, what is the financial statement disclosure?
Disclose type of change and reasons for change, income before OCI.
Prior-year errors in reporting other comprehensive income do not affect the beginning balance of retained earnings.
Would NOT make a prior year adjustment for “the prior year’s foreign currency translation gain of $2 million was never recorded.” This would affect OCI, not Retained Earnings.
Discovery in year 3 that equipment was fully expensed incorrectly rather than depreciated over x years, what adjustment should be made to depreciation expense at beginning of year 3?
NONE.
Would not make adjustment to depreciation expense, would adjust accumulated depreciation beginning of first year on f/s and Retained Earnings. The depreciation expense in year 3 would be the correct amount had the depreciation been done correctly, but at year end.
