Prospective Application

Question 1

What is a change in accounting estimate?

Answer 1

Derived from new information and is a change that causes the carrying amount of an asset or liability to change, or that changes the subsequent accounting for an asset or liability. Estimate changes are the most common type of accounting change

Question 2

How is a change treated when a change in principle cannot be distinguished from a change in estimate?

Answer 2

It is treated as a change in estimate (prospectively)

Question 3

How are changes in accounting estimate accounted for?

Answer 3

Prospectively. In the current and future periods. prior period statements are not affected, nor are there any prior period disclosures

Question 4

What disclosures are required for estimate changes?

Answer 4

1. ) Effect of the change on income from continuing operations, net income, and related per share amounts for the period of change for estimate changes affecting current and future periods
2. ) For estimate changes affecting only the period of change, the above disclosures are required only if material

Question 5

What is the rationale for applying the prospective method to estimate changes?

Answer 5

The new information triggering the change is not applicable to prior years.

Question 6

What is the amount of cumulative effect recorded for change in depreciation method?

Answer 6

None (prospective approach is applied)

Question 7

How is a change in depletion method accounted for?

Answer 7

Prospective approach (same as estimate change)

Question 8

What is the first computation in accounting for an estimate change involving a depletable resource?

Answer 8

Compute book value at the beginning of the year of change