WQ1. Explain whether each of the following would be treated as a change in accou

Question

WQ1. Explain whether each of the following would be treated as a change in accounting policy, change in accounting estimate or error or none of these. You need to give reasons for your answers.

i. The useful life of machinery is now assessed as 8 years (previously estimated at 5 years)

ii. It is now expected that at the end of its useful life, the machinery (in i above) will have no disposal value. It was previously expected to realise $10,000 on disposal.

iii. The company has previously only sold goods on a cash basis and hence no doubtful debts expense was recorded. In this period the company allowed sales on a credit basis and has recognised a doubtful debts expense of 1% of credit sales.

iv. The company has previously calculated its warranty provision as .05% of sales. However it has now been discovered that there was a problem with quality control in the previous period. It is now expected that claims for warrantees relating to sales from the previous period will increase to 1% of sales for that period.

v. It has been discovered that a sale to a customer in the previous period was incorrectly recorded at $2942 instead of $2429.

Explanation / Answer

1. Change in accounting estimates, because previously we assume that the useful life of a machinary is 5 years but now is 8 years.

2. Change in accounting estimates, because previously we assume that the disposal value of machinary is nil but now it is $10000.

3. none of these, because it is not effect the accounting policy & estimates.

4.Change in accounting estimates, because changing in warranty provision.

5.It is Error, because amount incorrectly entered.

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