Question 1:
Big Sports Company has been using the FIFO technique for the past three years. This period, the company has determined to switch to the LIFO technique.
Keeping the scenario in mind, show the reasons why a company might decide to make this change.
Analyze the effect that the change will have on the financial statements.
Show whether a company should restate the accounting change in the financial data of the prior years to reflect the new technique? Or the accounting change could be reflected in the existing and future years. Why?
Does any sort of change in the accounting principle, can result in dilution of public confidence in financial reporting? Why or why not?
Show whether the companies could follow a retroactive or retrospective approach while incorporating an accounting change.
Sometimes a company can't retrospectively adjust their statements, even with best efforts and intentions. Discuss what should the company can do in such a situation?
When preparing the periodic physical count for Inventory, Big Sports Company has found some of its inventory has become obsolete.
Scoreboards, formerly accounted for on the financial statements valued at $500,000, now have a fair market value of $200,000 and they are not expected to recuperate their value.
Assess the proper treatment to account for the reduction in value of the scoreboards.
Determine how the disclosure should be treated in this instance.
Examine what effect this would have on the financial statements.
Question 2:
Gigantic Sports Co. owns the land and building where its inventory is being warehoused. When it purchased the land two years ago, the company mistakenly expensed the cost of paving in the period.
What could they have done with the costs related with paving? Could the financial statements be affected at all with this change? If multiple instances such as this one happen, are the errors going to affect shareholder perception? Why or why not?