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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 asset’s residual value.
Solution: Accounted for prospectively
2. Change due to an overstatement of inventory.
Solution: Accounted for retrospectively
3. Change from sum-of-the-years’-digits to straight-line depreciation method because of a change in the patters of benefits received
Solution: Accounted for prospectively
4. Change in a primary source of GAAP
Solution: Accounted for retrospectively
5. Decision by management to capitalize interest. The company is reporting a self-constructed asset for the first time.
Solution: Accounted for prospectively
6. Change in the rate used to calculate warranty costs.
Solution: Accounted for prospectively
7. Change from an unacceptable accounting principle to an acceptable accounting principle
Solution: Accounted for retrospectively
8. Change in a patent’s amortization period.
Solution: Accounted for prospectively
9. Change from the zero-profit method to the percentage-of-completion method on construction contracts. This change was the result of experience with the project and improved ability to estimate the costs to completion and therefore the percentage complete.
Solution: Accounted for prospectively
10. Recognition of additional income tax owing from three years ago as a result of improper calculations by the accountant who was not familiar with income tax legislation and income tax returns.
Solution: Accounted for retrospectively
Explanation:
Prospective application refers to implementation of a new accounting policy to transactions after the date of the policy change, thus the recognition of the effect of changes in estimation of accounting in the current as well as future periods. However change is not applied to prior periods.
Retrospective refers to application of new accounting policies for transaction, event, or other circumstances as if it had been implemented.
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