CASE 2

Changes in accounting principle, change in estimates, and corrections of errors require unique reporting requirements. In accounting theory, it is significant to be able to distinguish the types of accounting changes.

Instructions:

A.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?

B.If a public company desires to change from the double declining balance depreciation method to the straight-line method for its property plants and equipment, what type of accounting change will this be? How would it be treated? Explain and discuss by providing your opinion.

C.If a public company obtained additional information about the service lives of some of its property plants and equipment 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 should be reported in the income statement of the year of the change and what disclosures should be made in the financial statements. Provide your opinion.