When Marsh became a subsidiary of Ross, Marsh switched the depreciation method of its plant assets from sum-of-the-years’ digits to straight-line, since straight-line was used by Ross. With respect to Marsh, this change was a: A) change in an accounting estimate. B) change in a reporting entity. C) change in accounting principle. D) correction of an error. Changes in asset lives and salvage value are changes in accounting: A) estimates and no specific disclosures are required. B) estimates and specific disclosures are required. C) principle and specific disclosures are required. D) principle and no specific disclosures are required.
C for the first – change in accounting principle (Type of Depreciation) A for the 2nd --> changes in accounting estimates (Salvage value, Life)
- C 2. A or B? I would guess B… a disclosure in the footnotes.
No disclosure required CPK?
C B - just doesn’t seem right you can change the asset life without disclosure - doesn’t that make it easy to manipulate accounts?
missed the disclosures… bad accountant!!!
i’m also going with C, B it seems like disclosures would be necessary
C and A are the answers Changes in accounting principle can either be voluntary changes or changes mandated by new accounting standards. A firm must disclose the nature of, justification for, and the change in principle. Changes from LIFO to another inventory accounting principle must also be reported. Changes in asset lives and salvage value are changes in accounting estimates and are not considered changes in accounting principle, so no specific disclosures are required.
overzealous accountant now!!!
Wow… can’t believe footnote disclosures aren’t required. Oh well, I’ll put that in the database.