Changed from the LIFO to the FIFO inventory cost flow assumption Reduced remaini
ID: 2485144 • Letter: C
Question
Changed from the LIFO to the FIFO inventory cost flow assumption Reduced remaining service life of machinery from 10 to 8 years. Indicate what type of accounting change or error, if any, is represented by each of the preceding items and the method of accounting (retrospective adjustment, prospective, or prior period adjustment) lor the item in the financial statements of the current year. Next Level Indicate the effect on the financial statements of the item (e.g., which accounts or line items are affected and is the effect an increase or a decrease).Explanation / Answer
a) Change from the LIFO to the FIFO - Accounting Change
Adjustment to be made on Prospective basis.
Impact of Net profit subject to rate from LIFO to FIFO, if the prices increase in FIFO, then profit will increase, otherwise decrease.
b) Reduced remaining life of machinery- Accounting change
Adjustment to be made on prospective basis.
Impact of Net Profit- Profit will decrease as we depreciate the machinery in less number of years.
c) Change of Depreication Method- Accounting change
Adjustment to be made on prospective basis.
Impact of Net profit- profit will increase as we change the method from Accelerated to SLM.
d) Write down of inventory- Error
Adjustment to be made on prospective basis.
IMpact on profit- Profit will decrease
e) Recevied damagaed one- Error
Prior period adjustment
Impact on Profit- Profil will increase with the claim received
f) Discovered as reveune expenses, should be capitalized :- Error
prior Period adjustment.
Impact on Profit- Profit will increase as revenue exp transfer to PLant & Machinery.
g) Wrote down of property- error
Adjustment should be made from prospective.
Impact on profit- Profit will decrease as we charged off the book value of property.
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