SOLVED

20.2Â Â Learning Objective 2 1) For the following accounting changes, identify the appropriate treatment under IFRS. Type of Accounting Change Accounting Treatment Change in estimate Change in accounting policy Correction of an error 2) Define the term “prospective adjustment” and which type of accounting changes is it applied to? 3) For a company using the straight-line method of depreciation that changes the estimated useful life from 20 years to 15 years remaining as at the beginning of the year, the accountant should do the following: A) Compute current year depreciation as (carrying amount – residual value) divided by 15 years. B) Adjust prior year’s depreciation. C) Adjust the amount of accumulated depreciation as at the beginning of the year. D) Compute current year depreciation as (carrying amount) X 15/20. 4) For a company using the straight-line method of depreciation that changes the estimated useful life from 20 years to 15 years as at the beginning of the year, the accountant should do (or not do) the following: A) Compute current year depreciation as (carrying amount – residual value) divided by 20 years. B) Do not adjust prior year’s depreciation. C) Adjust the amount of accumulated depreciation as at the beginning of the year. D) Compute current year depreciation as (carrying amount) X 15/20. 5) For a company using the straight-line method of depreciation that changes the estimated useful life from 20 years to 15 years as at the beginning of the year, the accountant should do (or not do) the following: A) Compute current year depreciation as (carrying amount – residual value) divided by 20 years. B) Adjust prior year’s depreciation. C) Do not adjust the amount of accumulated depreciation as at the beginning of the year. D) Compute current year depreciation as (carrying amount) X 15/20. 6) For a construction contract where the company uses the percentage of completion method and there is a change in the estimated total cost of the contract from 12 million to 13 million, the accountant should do the following: A) Use the average cost of 12.5 million. B) Compute the percentage completed using the new cost total if the company uses the cost ratio to estimate percentage completed. C) Use estimated costs determined at the beginning of the contract, not actual costs to date. D) Use retrospective treatment. 7) Why is the prospective treatment conceptually appropriate for changes in estimates?