Accounting Changes and Error Corrections

Question 1

Inventory Change from FIFO to LIFO

Answer 1

Change in Accounting Principle. Do Nothing.
When you go to LIFO OR LAHORE you DO NOTHING. You CAN’T build LAYERS!
EXCEPTION TO THE GENERAL RULE

Question 2

Inventory Change from LIFO to FIFO

Answer 2

Change in Accounting Principle.

Retrospective

Question 3

New Update on Accounting Standard

Answer 3

Change in Accounting Principle.

Retrospective

Question 4

Change from in method of Depreciation, Amortization and Depletion

Answer 4

Change in Accounting Principle.
NOT Retrospective. Treat it like Estimate!!!
EXCEPTION TO THE GENERAL RULE

Question 5

Inventory Change from LIFO to to FIFO

Answer 5

Change in Accounting Principle.
Retrospective
Adjust the Beginning Retained Earning of Earliest Year Presented IF the year is NOT PRESENTED

Question 6

Is Change from Non-GAAP to GAAP a Change in Accounting Principle?

Answer 6

No. It is an ERROR

Question 7

How do you implement the Retrospective change?

Answer 7

Cumulative effect of a change in accounting principle is equal to the difference between the amount of beginning Retained Earnings in the period of change and what the Retained Earnings would have been if the accounting change had been retroactively applied to ALL PRIOR AFFECTED PERIODS. Cumulative EFFECT is equal to the difference between beginning Retained Earnings in the first period presented and what Retained Earnings would have been if the new principle had been applied to ALL PRIOR PERIOD. (NET OF TAX)

Question 8

Change in Lives of Fixed Assets

Answer 8

Change in Accounting Estimate

Prospectively

Question 9

Adjustment of year-end accrual of officers’ salaries and/or bonuses

Answer 9

Change in Accounting Estimate

Prospectively

Question 10

Write-down of Obsolete Inventory

Answer 10

Change in Accounting Estimate

Prospectively

Question 11

Material, nonrecurring IRS Adjustment

Answer 11

Change in Accounting Estimate

Prospectively

Question 12

Settlement of Litigation

Answer 12

Change in Accounting Estimate

Prospectively

Question 13

Changes in Accounting Principle that are inseparable from a change in estimate

Answer 13

Change in Accounting Estimate

1. Going to LIFO
2. Change in Depreciation Method
   (e. g., A change from the installment method to immediate recognition method because uncollectible accounts can now be estimated).

Question 14

Revisions of estimates regarding discontinued operation.

Answer 14

Change in Accounting Estimate

Prospectively