Question
Asked Jan 24, 2020
2 views
What is the indirect effect of a change in accounting principle? Briefly describe the reporting of the indirect effects of a change in accounting principle.

 

check_circle

Expert Answer

Step 1

Change in an accounting principle: This change occurs when a company decides to change from an accounting principle to another, like change from LIFO to FIFO. A change in accounting principle effects the values that impact the figures of previous and current years, thus, impairs the consistency and comparability. Hence, the changes in accounting principle should be adjusted with a retrospective effect to impact the previous financial statements, to increase the comparability and the consistency of the values between the previous and current accounting periods.

Step 2

Indirect effects of a change in accounting principle: This the amount by which the income of a company of a previous period is affected due to effect of change in accounting principle on the other elements of income.

Methods of reporting accounting changes:

  • Retrospective adjustment method: This method requires that the previously reported financial statements should be revised to reflect the current accounting change. The change...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: What are the accounting problems related to the presentation of interim data?

A: Interim data is the data which covers a period less than the fiscal year.  The data is issued during...

question_answer

Q: Selection of most profitable product. Body Image, Inc., produces two basic types of weight-lifting e...

A: Operating income: The outcome of deduction of operating expense and depreciation from the gross inco...

question_answer

Q: Value engineering, target pricing, and locked-in costs. Sylvan Creations designs, manufactures, and ...

A: Requirement 1:Determine the full target cost per unit and total target operating income. 

question_answer

Q: During 2016, WMC Corporation discovered that its ending inventories reported on its financial statem...

A: 1. 

question_answer

Q: Help with the A,B, and C

A: Cost accounting is the branch of accounting that inspects the cost structure of a business. This bra...

question_answer

Q: Life-cycle budgeting and costing. Arnold Manufacturing, Inc., plans to develop a new industrialpower...

A: 1.Calculate the operating income that the company will make over the product\'s life cycle.

question_answer

Q: What are diversified companies? What accounting problems are related to diversified companies?

A: Diversified Companies: The companies which are engaged in multiple businesses, provides a large vari...

question_answer

Q: Analyzing and journalizing bond transactions On January 1, 2018, Electricians Credit Union (ECU) iss...

A: 1.

question_answer

Q: The owners of a corporation are its shareholders. If a corporation has only one class of shares, the...

A: Common stock: These are the ordinary shares that a corporation issues to the investors in order to r...