Accounting Changes Changes in Accounting Estimate

Definition/Nature -it is an adjustment of the carrying amount of an asset or a liability, or the amount of the periodic consumption of an asset that results from the assessment of the present status and expected future benefit and obligation associated with the asset and liability.

Accounting Treatment -it shall be recognized currently and prospectively. -it shall not be accounted for by restating amounts reported in financial statements of prior periods. 1,000,000

Proforma 700,000 300,000

Examples -Doubtful Account estimation Depreciation (300,000/2) 150,000 Accumulated Depreciation 150,000 -Inventory Obsolence -Changes in Depreciation Method -Warranty Cost -Change in fair value of financial assets and financial liabilities

-prospective recognition of the effect of a change in accounting estimate means that the change is applied to -it is a normal recurring transactions, other events and correction or adjustment of conditions from the date of an asset or liability which is a change in estimated. natural result of the lose of an estimate.

Cost Accumulated depreciation 2010 (4/10 x 1,000,000) 400,000 2011 (3/10 x 1,000,000) 300,000 Carrying Amount-Jan. 1 2012

-essential for a proper understanding of the information contained in the financial statements.

-if the standard/interpretation contains no transitional provisions or if an accounting policy is changed voluntarily, the change shall be applied retrospectively or retroactively. *Retrospective Application
-applying a new accounting policy transactions, other events and conditions as if that policy had always been applied

Weighted Average

750,000 1,200,00 1,000,000 750,000 250,000

Accounting Changes Definition/Nature Changes in Accounting -specific principles, base, conventions, rules and Policy practices applies by an entity in preparing and presenting financial statements.

Accounting Treatment -it is required by a standard or an interpretation shall be applied in accordance with the transitional provisions there.

Proforma

Examples -changes in the method of inventory pricing from the FIFO to weighted average method -changes in the method of accounting for long term construction contruct. -the initial adoption of policy to carry assets at revalued amount. -change from cost model to fair value model in measuring investment property, plant and equipment. -change to a new policy resulting from the requirement of a new PFRS.

2011 1,000,000 2012 1,500,000 FIFO Inventory-Jan. 1, 2012 Weighted Average Inventory-Jan. 1, 2011 Decrease in Beginning Inventory

Retained Earnings Inventory-Jan. 1

-any resulting adjustment from the change in accounting policy shall be reported as an adjustment to the opening balance of retained earnings.

250,000 250,000

FIFO

-to correct the prior period year.

Retained Earnings Inventory- Jan. 1 (or cost of sales)

300,000 300,000

Accounting Changes Change in Reporting Entity

Definition/Nature -a change whereby entities change their nature and report to their operations in such a way that the financial statements are in effect of those of a different reporting entity.

Accounting Treatment -a change in reporting entity is actually a change in accounting policy and therefore shall be treated retrospectively/retroactively to disclose what the statement would have looked like if the current entity had been existence in the prior year

Proforma

Examples -prior period errors