1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy.
1. Discovered that manufacturing equipment was being amortized using a 9% declining balance basis, rather than being amortized over its nine year life according to corporate accounting policy.
Chapter11: The Corporate Income Tax
Section: Chapter Questions
Problem 5P: Fisafolia Corporation has gross income from operations of $210,000 and operating expenses of...
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9
Transcribed Image Text:Solomon Ltd. is a private corporation. Set
out below are various considerations
pertaining to Solomon Ltd., and brought to
your attention for the year ending
December 31, 2019.
1. Discovered that manufacturing
equipment was being amortized using a 9%
declining balance basis, rather than being
amortized over its nine year life according
to corporate accounting policy.
2. Change in the percentage of annual
warranty cost accrued from 3% of sales to
5% of sales in the year, to reflect the
expansion of business operations across
Canada.
3. Average cost inventory valuation at the
beginning of the year found to be incorrect
due to employee theft in previous years.
Management determines that it is unable to
gather sufficient detail necessary to
determine the opening balance.
4. Capitalization and amortization of
miscellaneous expenses incurred, related to
the commencement of product research
and development activities in the year.
5. Change from declining-balance
depreciation to straight-line depreciation of
all office machinery, in order to conform to
industry practice.
REQUIRED:
Analyze each case above and indicate
whether the type of accounting change
required is a change in policy, a change in
estimate, the correction of an accounting
error, or that no accounting change has
occurred. Also indicate whether the related
accounting treatment for each case above
is retrospective with full restatement,
prospective, or that no accounting
treatment is required.
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