The following are various types of accounting changes:
_______ 1. Change in a plant asset’s residual value
_______ 2. Change due to an overstatement of inventory
_______ 3. Change from sum-of-the-years’-digits to straight-line method of depreciation because of a change in the pattern of benefits received
_______ 4. Change in a primary source of GAAP
_______ 5. Change in decision by management from not capitalizing interest during construction to capitalizing it because the change increases the relevance of the resulting information. The company is reporting a self-constructed asset for the first time.
_______ 6. Change in the rate used to calculate warranty costs
_______ 7. Change from an unacceptable accounting principle to an acceptable accounting principle
_______ 8. Change in a patent’s amortization period
_______ 9. Change from the zero-profit method to the percentage-of-completion method on construction contracts because the company now accepts longer commercial contracts rather than shorter residential contracts
_______ 10. Recognition of additional income taxes owing from three years ago as a result of improper calculations by the accountant, who was not familiar with income tax legislation and income tax returns
(a) For each change or error, use the following code letters to indicate how it would be accounted for assuming the company follows IFRS:
Accounted for in the current year only (CY)
Accounted for prospectively (P)
Accounted for retrospectively (R)
None of the above, or unable to tell. Explain. (NA)
(b) Identify the type of change for each of the situations in items 1 to 10.
(c) Now assume that the company follows ASPE. Identify the situations in part (a) that would be accounted for differently under ASPE than IFRS.
(d) What are the conditions that must exist for an entity to be allowed to change an accounting policy?