Question: Rydell Manufacturing Ltd is preparing its year end financial statements Rydell

Rydell Manufacturing Ltd. is preparing its year-end financial statements. Rydell is a private enterprise. The controller, Theo Kimbria, is confronted with several decisions about statement presentation for the following items.
1. The company has decided to change its depreciation method for the machinery to units of production rather than the straight-line method.
2. Trying to meet the criteria for capitalization of the development costs has become very difficult because of the highly competitive conditions in this market. Therefore, the practice of deferring and amortizing development costs has been abandoned in favour of expensing these costs as they are incurred.
3. The company has decided to change from using the corridor approach for accounting for actuarial gains and losses to recording these directly to OCI in each reporting period (or directly to net income if the company follows accounting standards for private enterprises, or ASPE).
4. When the year-end physical inventory adjustment was made for the current year, the controller discovered that the prior year’s physical inventory sheets for an entire section of warehouse had been mislaid and left out of last year’s count.
5. The method of accounting that is used for financial reporting purposes for certain receivables has been approved for tax purposes during the current tax year by the CRA. This change for tax purposes will cause both current taxes payable and future tax liabilities to change substantially.
6. Management has decided to switch from the FIFO inventory valuation method to the average cost inventory valuation method for all inventories.
For each of the six changes that Rydell Manufacturing Ltd. made in the current year, advise Theo on whether the change is a change in accounting policy, a change in estimate, the correction of an error, or none of these. Explain if the accounting treatment would be different under ASPE or IFRS. Provide a short explanation for your choice. Determine if retrospective or prospective application would be required in each case and what information would be required in any note disclosure. If the information that is provided is insufficient for you to determine the nature of the change, identify what additional information you need and how this might affect your response.

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  • CreatedAugust 23, 2015
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