The four types of accounting changes, including error correction, are change in

Question

The four types of accounting changes, including error correction, are            
            change in accounting principle;
            change in accounting estimate;
            change in reporting entity; and
            error correction.

Required:                      
The following are a series of situations. Indicate the type of change.       
1          Changing the companies included in combined financial statements
2          Change in both estimate and acceptable accounting principles
3          Change from presenting nonconsolidated to consolidated financial statements
4          Change from FIFO to LIFO inventory procedures
5          Change in amortization period for an intangible asset
6          Change due to failure to recognize an accrued (uncollected) revenue
7          Change due to charging a new asset directly to an expense account
8          Change due to understatement of inventory
9          Change from straight-line to sum-of-the-years'-digits method of depreciation
10         Change in residual value of a depreciable plant asset
11         Change in the loss rate on warranty costs
12         Change in life of a depreciable plant asset
13         Change due to failure to recognize and accrue income
14         Change in expected recovery of an account receivable
15         Change from expensing to capitalizing certain costs, due to a change in periods benefited

Explanation / Answer

S no. Changes Reason 1 change in reporting entity As companies included in consolidated financial statement is changed 2 change in accounting principle;             change in accounting estimate; since there is a change in both accounting principles and estimated both are reportable 3 change in reporting entity Now the company is presenting its consolidated financial statement as a group company 4 change in accounting principles Change in application of method 5 change in estimate change in estimate of periods for amortization 6 error correction fail to recognise revenue 7 error correction error in recognising capital as revenue expenditure 8 error correction difference in value of inventory 9 change in accounting principle change in application of method 10 change in estimates Since residual value is generally estimated 11 change in estimates change in recognizing warranty loss rate 12 change in estimates life of an asset is estimated on standard basis 13 error correction failure to recognse revenue 14 change in estimates recovery period is generally estimated 15 change in accounting principles change for capitalizing cost from recognising as revenue cost

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