Michael Chandler
Liberty University
ACCT 632
6-4 Accounting Changes
A. If a public company desires to change from the sum-of-year's-
digits depreciation method to the straight-line method for its
fixed assets what type of accounting change will this be? How
would it be treated? Discuss the permissibility.
A change in accounting principle. Change in accounting principle
is the change from accounting method for the item or transaction to
another accounting method for same transaction, when both methods
are GAAP. GAAP requires that changes in an accounting principle
should be done retrospectively. Retrospectively meaning revisiting
past years statements. It is done by reporting the current results on
the new basis, reporting the cumulative effect of change in current
income statement.“FASB ASC 250 requires that the new accounting
principle must be applied to the balances of the appropriate asset and
liabilities as of the beginning of the earliest period for which
retrospective application is practicable…”(Schroeder, Clark & Cathey,
2014)
B. If a public company obtained additional information about the
service lives of some of its fixed assets that showed that the
service lives previously used should be shortened, what type of
accounting change would this be? Include in your discussion
how the change should be reported in the income statement of
the year of the change and what disclosures should be made in
the financial statement or notes.
A change in accounting estimates. Change in estimates require
the current and prospective approach by reporting current and future
financial statements on the new basis. Estimated that are based on
the judgments have substantial accounting role. Any entity shall
disclose the nature and amount of a change in an accounting estimate
that has an effect in the current period or is expected to have an effect
in future periods. If the amount of the effect in future periods is not
References
CHAPTER 4: REPORTING ENTITY. (2013). New York: International
disclosed because estimating it is impracticable, and entity shall
disclose that fact.
C. Changing specific subsidiaries comprising the group of
companies for which consolidated financial statements are
presented is an example of what type accounting change? What
effect does it have on the consolidated income statements?
This form of accounting change is known as a change in a
reporting entity. “Reporting entities prepare GPFRs. GPFRs include
financial statements, which present information about such matters as
the financial position, performance and cash flows of the entity, and
financial and non-financial information that enhances, complements
and supplements the financial statements”(Reporting Entity, 2013).
Whenever an entity is the primary beneficiary of the financing entity
the assets and liabilities of that entity are used as the fair value of the
assets and liabilities of that particular entity.
Biblical Perspective
I strongly believe that these particular changes in
accounting are very important and applicable in the biblical time. As
management seek to run they day to day operations of their
organization they must do whatever is needed for the advancement of
their organization. Change is something that we all will be effected
with, change is something that we all will face it is up to us as
individuals as well as organizations how we handle change. Ezekiel
36:26 says " I will give you a new heart and put a new spirit in you; I
will remove from you your heart of stone and give you a heart of
flesh". One can certainly conclude that change in any organization
can be a great thing but it up to organization leaders on how they
respond to the changes.
Federation of
Accountants: IFAC. Retrieved from
http://search.proquest.com/docview/1347809117?accountid=12085Pa
Schroeder, R.G., Clark, M.W., & Cathey, J.M. (2014). Financial
accounting theory and analysis:
