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Xedugen.wileyplus.com willeyPLUS: MywileyPLUSI Help I Contact UsI Leg Out WileyPLUS Kies, intemediate Accounting, 11e Volume 2 INTERMEDIATE ACCOUNTING II (ACCT 316) Home Read, Study & Practice Assignment Gradebook ORION Downloadable eTextbook Assignment>Open Assignment FULL SCREEN PRINTER VERSION BACK ASSIGNMENT RESOURCES copy of Chp.21Assignment Exercise 21-5 Answers the below questions. The following are various types of accounting changes: For each change or error, indicate how it would be accounted for assuming the company follows IFRS Accounting Treatment Objective 1. Change in a plant asset's residual value 2. Change due to an overstatement of inventory (in the preceding period) Change from sum-of-the-years-digits to straight-line method of depreciation because of a 4. Change in a primary source of GAAP Decision by management to capitalize interest. The company is reporting a self-constructed asset for the first time. 5.Explanation / Answer
1. Change in a Plant's asset residual value: Accounted for Prospectively.
International Accounting Standard (IAS) 16 recognizes that residual value of asset may increase or decrease as a result of revaluations or future assessments.
IAS 16 recognizes such change as a change in accounting estimate i.e. adjustment will be prospective in nature. There is no need to adjust for previously recorded depreciation charge in the financial statements.
The change in the estimate is reported in the current and prospective periods. In other words, previously reported statements and opening balances do not need to be adjusted to reflect the change in the useful life estimate.
2. Change due to an overstatement of inventory (in the preceeding period): Accounted for Retrospectively.
Mistakes due to errors in arithmetic, poor estimates, or carelessness usually require adjusting, corrective entries. Very often these entries require a debit or credit to the beginning-of-period Retained Earnings. Such entries are called “prior period adjustments.”
3. Change from sum of the year digits to the straight line method of depreciation because of a change in the pattern of benefits received: Accounted for Prospectively.
A company may decide to change the depreciation method it applies to a fixed asset. For example, if an asset loses much of its value early on, a company might switch from straight-line to accelerated depreciation.
This is a change in the accounting estimate for the asset’s depreciation, which in turn signals a change in accounting principle for the company. The change of accounting estimate alters the pace at which depreciation accumulates and thus affects the carrying value of asset i.e. purchase cost less accumulated depreciation, on the balance sheet over time.
4. Change in a primary source of GAAP: Accounted for Retrospectively.
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