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28/11/2018 Question 4.

Answer

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Question 4
Identify the type of accounting change that is described in each item, and indicate whether the prior years’
financial statements must be restated when presented in comparative form with the current year’s financial
statements. Assume ASPE is followed.

Assume that each item on the following list would have a material effect on the financial statements of a private
enterprise in the current year:

Restatement of Prior
Years in comparative
Type of Change Financial Statements
A change to the
income taxes
payable method
1. Change in accounting policy Yes
from the future
income taxes
method
2. A change in the
estimated useful
life of previously
recorded capital
assets where the Change in accounting estimate No
straight-line
depreciation
method is used
3. A change from
deferring and
amortizing
development
costs to
immediate
recognition of
development
costs as
expense; the
change to Change in accounting policy / Change in accounting estimate Yes/No
immediate
recognition
arises because
the company
does not have
the resources to
market the new
product
adequately
4. A change from
including the
employer share
of CPP and EI
premiums as a
separate payroll
tax expense to Correction of an error Yes
including them
with salaries and
wages expense
on the income
statement
The correction of
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28/11/2018 Question 4. Answer

a mathematical
error in
5. Correction of an error Yes
inventory costing
that was made in
a prior period
6. A change from
straight-line to
double-declining-
balance method
of depreciation in
recognition of
the effect that Change in accounting estimate No
technology has
on the pattern of
benefits received
from the asset’s
use
7. A change from
presenting
unconsolidated
financial
statements
(using the cost
method for
subsidiaries) to Change in accounting policy Yes
presenting
consolidated
financial
statements for
the company and
its two long-held
subsidiaries
8. A change in the
method of
accounting for
leases for tax
purposes to
conform to the
method of
accounting for
leases for No change No
financial
accounting
purposes; as a
result, both
future and
current taxes
payable changed
substantially
9. A change from
the periodic
inventory
method to the
perpetual
inventory
method with the
introduction of No change N/A
scanning
equipment and
updated
computer
software (FIFO
used)
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28/11/2018 Question 4. Answer

A change in an
accounting
method due to a
10. Change in accounting policy Yes/No
change in a
primary source
of GAAP

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