Accounting Changes
Response to the following problem:
It is important in accounting theory to be able to distinguish the types of accounting changes.
Required:
1. If a public company desires to change from the sum-of-theyears'-digits depreciation method to the straight-line method for its fixed assets, what type of accounting change would this be? Discuss the permissibility of this change.
2. If a public company obtained additional information about the service lives of some of its fixed assets that showed that the service lives previously used should be shortened, what type of accounting change would this be? Include in your discussion how the change is reported in the year of the change, and what disclosures are made in the financial statements or notes.
3. If a company discovers halfway through a building's life that it ignored the residual value of the building in computing the straight-line depreciation, what type of accounting change would this be? Include in your discussion how the change is reported in the year of the change, and what disclosures are made in the financial statements or notes.
4. Changing specific subsidiaries comprising the group of companies for which consolidated financial statements are presented is an example of what type of accounting change? What effect does it have on the consolidated income statements?