Acc 499- Accouting Changes
Submitted By TruBabegirl
In case situation 1, the change in the accounting estimate is used due to changes being made for future benefits. Under the current GAAP “Generally Accepted Accounting Principle” SFAS No. 154, the change in accounting estimate is reported as the following:
a. Applied to the period of change and future periods only.
b. Amounts reported for periods will not be restated or retrospectively adjusted.
Depending on the method the company chooses to use will determine how the change is computed. If using the straight line method the company will first find the net book value of each fixed asset. Take the current value of the asset and began to depreciate it by the new depreciation years. As a result on the balance sheet or income statement in the prior years, no change is reported. However, it will affect the net income of the current and future years. The foot notes may read: After reviewing the company’s fixed assets life, it is determined that we would be reducing the life of all existing fixed asset by five years. This was based on the fact that the present depreciable life of the assets is presently too long to fairly match the cost of the fixed asset with the revenue produced to be the conclusion.
In case situation 2 the change in reporting entity was used in this case. Once again, under the existing GAAP “Generally Accepted Accounting Principle” SFAS No. 154 the change in reporting entity is reported as the following:
a. Retrospectively applied to financial statements of all prior periods.
b. The effect of change on income should be disclosed for all periods (presented).
The Gary and Allen Company must consolidate for the current year and the prior years on their financial statements. The balance sheet and the income statement will show a significant increase due to the consolidation of the two companies. The foot notes may read. On December 31, 2009 Gary and...