Accounting Changes and error corrections\

Question 1

what is the treatment for a change in Inventory method?

Answer 1

Change in inventory method should be handled the same way as a change in accounting principle. I.E. retrospective application

Question 2

What is the treatment for a change from cash basis to accrual basis?

Answer 2

The treatment should be handled as a correction of an error with retrospective applications

Question 3

Althouse Co. discovered that equipment purchased on January 2 for $150,000 was incorrectly expensed at the time. The equipment should have been depreciated over five years with no salvage value. What amount, if any, should be adjusted to Althouse’s depreciation expense at January 2, the beginning of the third year, when the error was discovered?

Answer 3

Since this was an error depreciation expense adjustment is not booked to I/S, but recorded to R/E.
Note (1.)if this was a change in estimate for depreciation expense then it would be recorded prospectively.
Note (2.) If this was a change in depreciation methods I.E. change from S/L to DDB recorded prospectively

Question 4

What is the only exception to a change in accounting principle with retrospective application?

Answer 4

The only exception is when the FASB issues a new pronouncement and mandates in that pronouncement that a change in accounting principle made to comply with that pronouncement should be made by including the cumulative effect in net income of the year of change.

Question 5

What is IFRS rule on “impractability” of change in accounting principle and correction of error?

Answer 5

IFRS allows an exception of reporting the impact of both changes in accounting principles and correction of errors. In that case, the principle or error change is applied from the earliest date practicable.

Note: Still categorized as a change in accounting principle and correction on an error