FASB Codification Assignment-3

Date September 2, 2020

Item 1: Accounting Estimates and Accounting Changes

Accounting changes refer to the variations that impact the quantity of the existing liabilities/assets. The changes can also be referred to as alterations towards existing or future liabilities/assets. The changes occur either when the estimates have been proved to incorrect or when new information emerges. An example of accounting changes is the presence of an obsolete inventory. Accounting estimates, on the other hand, refers to accounting variations that are inseparable from the impacts related to associated accounting principle (“Asc.fasb.org,” 1999). Accounting estimates results when two or more GAAP principle applies to a common situation—for example, depreciation and amortization approach on assets.

The two differ in several ways. Accounting changes majorly occurs when new methods are utilized or when older approaches are no longer applicable. The variations are only applied through retroactively. An example is the inability to make significant subjective estimates (“Asc.fasb.org,” 1999). Accounting estimates, on the other hand, are encountered within specific periods, and they require a restatement more frequently. Incase changes have immaterial differences; then, there is no disclosure needed.

Item 2: Guidance the codification provides concerning the format of accounting disclosures

Codifications references: ASC 235-10-50 Paragraph 6

Matter of format of accounting disclosure policies ought to be made very flexible. Flexibility will allow entities to easily describe, recognize, and also describe essential accounting policies that can result in positive impacts (“Asc.fasb.org,” 1999). For an enhanced understanding, disclosure is preferred to be done separately just after summary and policy notes.

Item 3:

Codifications references: ASC 235-10-05

Codifications references: ASC 235-10-50

Financial position, description, and cash flows cannot be presented fairly in the presence of lack or insufficient information on accounting policies. All GAAP policies need to be evaluated and integrated to ensure that the outcome is definite. Usually, the policies do not apply to unaudited information. A genuine financial statement must be plagiarism free, an original work that has never been presented before elsewhere (“Asc.fasb.org,” 1999). In case the information presented is related to work that was presented elsewhere before, citations are essential. Disclosure is presented in a separate significance summary to maintain the same topic/title being discussed.

Accounting policies are defined as unique accounting principles and techniques of applying the techniques which are judged by a management entity when it comes to the presentation of a fair financial position (Keiso, Weygandt & Warfield, 2016). Accounting policies incorporate all the approaches followed. Only accounting policies can describe accounting principles. Disclosure of accounting policies incorporates important judgments which checks on the appropriateness of the principle to be applied. The following are the three scenarios which can result to detailed accounting disclosure. The first one is making a selection from an existing acceptable alternative, second are situations that entail unusual application of GAAP principles when policies need to be selected from existing acceptable alternatives and the last scenario is when principles and approaches available are odd to the industry under considerations.

Item 4:

Codifications references: ASC 835-20

Based on the principles of financial accounting, capitalizing interest in the cost of assets is acceptable. Capitalization is generally part of the process of acquiring an asset. Not every asset qualifies for interest capitalization (“Asc.fasb.org,” 1999). Qualified assets include assets produced to be used within the entity, assets meant to be sold, and assets meant for investments.

Yes, there exists a limit in the amount of interest that can be capitalized. The guiding principle is that amount capitalized should not exceed the cost incurred within the specified period. This upholds equality within the form. Two disclosures are required once interest capitalization has been accepted. These are disclosure about the cost of interest incurred subject to expenses during the specified period.

References