Q2: ACCOUNTING POLICY CHOICE Liza Smith is the new chief accountant of Plight of the Cormorants Ltd, a company devoted to environmental issues. For the financial year ending 30 June 2008, she has made the following recommendations for accounting policy changes. She has been called upon by the company's chief managing officer to explain the possible effects of the policy changes on some of the company's accounts. Accounting policy changes 1 Reducing balance instead of straight-line depreciation of the Sea-Stewardess boat (purchased on 1 January 2008) 2 Weighted average instead of FIFO for inventory (prices have been falling) 3 Expensing development expenditure instead of capitalising 4 | Changing doubtful debt policy from 5% of sales to 15%. Sales remain constant. 5 Using the historical cost instead of revaluation method for buildings (prices have been increasing) 01 Using the revaluation method instead of historical cost for land (prices have been increasing) Required Part A: If the accounting policy changes are accepted, what will be the effect (increase, decrease, or no effect) on the selected accounts in the table above? Record your answers in the following table: Accounts Net profit Total assets Net profit Total assets Effect (increase, decrease, or no effect) 5 Cash flow from operations (current year) Total assets DO NOT WRITE OUTSIDE THE BOX