Case 1: Accounting Changes It is important in accounting theory to be able to distinguish the types of accounting changes: Required: a) If a public company desires to change from the sum-of-year’s-digits depreciation method to the straight-line method for its fixed assets, what type of accounting change will this be? How would it be treated? Discuss the permissibility of this change. b) If a public company obtained additional information about the service lives of some of its fixed assets that showed that the service lives previously used should be shortened, what type of accounting change would this be? Include in your discussion how the change should be reported in the income statement of the year of the change and what disclosures should be made in the financial statements or notes.
Case 1: Accounting Changes
It is important in accounting theory to be able to distinguish the types of accounting
changes:
Required:
a) If a public company desires to change from the sum-of-year’s-digits
method to the straight-line method for its fixed assets, what type of accounting
change will this be? How would it be treated? Discuss the permissibility of this
change.
b) If a public company obtained additional information about the service lives of
some of its fixed assets that showed that the service lives previously used should
be shortened, what type of accounting change would this be? Include in your
discussion how the change should be reported in the income statement of the
year of the change and what disclosures should be made in the financial
statements or notes.
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