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ysjd.patel
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Posted: 01 Jul 2009 at 09:39 \| IP Logged

me too agree with shilpjain....

Change in depreciation method: Change in Estimate---Prospective effect.

Change in Inventory method: Change in accounting Principle ---Retrospective effect....Exception is change from any other method of inventory to LIFO----Effect is Prospective( its difficult to find the data of inventory prices of severals years ago)

soontobecpa
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Posted: 01 Jul 2009 at 10:10 \| IP Logged

I went through Becker.. Just read the exception.

I was thinking only changes in accounting estimates have
prospective effect..

Thanks!

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soontobecpa
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Posted: 01 Jul 2009 at 10:21 \| IP Logged

oldog new trics,

I have just started the prep,but from what I have
understood:

Cumulative effect is the difference between the

1.RE as of now,during the period the change occured.
2.RE as if the new principle has been followed all the
while.

That is the cumulative effect.Its a number.

If comparitive statements are presented,then we need to
go back to each year and restate the effected accounts.
It should be remembered that for a publicly traded
company,minimum 3 years comparitive income
statement,statement of cash flows should be
presented.Whereas 2 years of Balance sheets only are
needed to be included in the comparitive statement.

If there is a change in inventory method,we need to
calculate the new COGS,Ending Inventory,Net Income for
each year presented.Then create the new changed
statements.

There is a thorough example in wiley's module 7C.

If i am wrong anywhere,please do correct me.

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oldog new trics
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Posted: 01 Jul 2009 at 11:47 \| IP Logged

Here is the Wiley question:

Which of the following would receive treatment as a cumulative effect on an accounting change on the income statement?

LIFO to weighted average?

FIFO to weighted average?

Wileys answer is: A change in inventory method no longer receives cumulative effect treatment on the income statement. Instead, SFAS 154 requires that the accounting change be given retrospective application to the earliest period presented.

We know that we would treat it retrospectively, but is there a difference between retrospective treatment and cumulative effect treatment?

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ysjd.patel
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Posted: 01 Jul 2009 at 12:10 \| IP Logged

I think retrospective treatment and cumulative effect treatment is the same...

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