Question

с 22-10 Researching GAAP AICPA Adapted Sometimes a business entity may change its method of accounting for certain items. It may classify the change as a change in accounting principle, a change in accounting estimate, or a change in reporting entity. The following are three situations faced by Hyde Company relating to accounting changes Situation I Hyde determined that the depreciable lives of its fixed assets are presently too long to fairly match the cost of the fixed assets with the revenue produced. Hyde decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years

Answer 1

ANSWER:

Sr.No	Situation	Type of accounting Change	Manner of reporting under GAAP	Effects of the change	Footnote Disclosure
1.	Hyde determined that the depreciable lives of its fixed assets are presently too long to fairly match the cost of the fixed assets with the revenue produced. Hyde decided at the beginning of the current year to reduce the depreciable lives of all of its existing fixed assets by 5 years	A Change in accounting estimate	Change should not be recorded by restating amounts reported in prior period financial statements. In case the change affects the period in which it is made or future period it must have to be accounted for.	Changes due to change in estimated are required to be accounted prospectively. Financial statements of current and future year are required to be estimated.	On the footnote the effect of that change on the current year's income before extraordinary items, earnings per share, and net income must be disclosed if amount involved is material so as to alter the decision of users.
2	On December 31, 2012, Hyde owned 51% of Patten Company, at which time Hyde reported its investment using the cost method, owing to political uncertainties in the country in which Patten was located. On January 2, 2013, the management of Hyde was satisfied that the political uncertainties were resolved and the assets of the company were in no danger of nationalization. Accordingly, Hyde will prepare consolidated financial statements for Hyde and Patten for the year ended December 31, 2013.	A change would be required in the Reporting entity	Financial statements of all prior periods presented must be restated in a proper order to reflect the financial information for the new reporting entity for all periods	Prior-period financial statements purposes must be restated which have been presented for comparative purposes	On the footnote reason and nature for change should be disclosed
3.	Hyde decides in January 2013 to adopt the straight-line method of depreciation for equipment. The straight-line method will be used for new acquisitions, as well as for previously acquired equipment for which depreciation had been provided on an accelerated basis.	A change would be required in the Accounting principle	Financial statement of prior period required not be restated because the change in accounting principle is considered as change. In accounting estimated effected by change in accounting principle. If there is any remaining depreciation is to be amortised over reaming life of the asset.	There has not to be any cumulative effect of the change on its income statement in the period of change or prior period is to be shown	On the footnote the new method adopted and its reason for change is required to be disclosed. Also proper justification of new method has to be made