QUESTION 17-15 Multiple choice (ATCPA Adapted)

1. How should the effect of a change in accounting estimate be accounted for?

a. By restating amounts reported in prior periods
b. By reporting proforma amounts for prior periods
c. As a prior period adjustment of retained earnings
d. In the period of change and future periods if the change affects both

2. Which is characteristic of a change in accounting estimate?

a. It usually need not be disclosed
b. It does not effect the financial statements of prior period
c. It should be reported through the restatement of the financial statements
d. It makes necessary the reporting of proforma amounts

3. A change in the periods benefited by a deferred cost because additional information has been
obtained is
a. An accounting change reported in the period of change and future periods if the
change affects both
b. An accounting change that should be reported by restating the financial statements of all
prior periods presented
c. A correction of an error
d. Not an accounting change

4. A change in the residual value of an asset arising because additional information has been
obtained is
a. An accounting change reported in the period of change and future periods if the
change affects both
b. An accounting change that should be reported by restating the financial statements of all
prior periods presented
c. A correction of an error
d. Not an accounting change

5. Why is retrospective treatment of change in accounting estimate prohibited?

a. A change in accounting estimate is a normal recurring correction or adjustment.
b. The retrospective treatment is not allowed.
c. Retrospective treatment of a change in accounting estimate is required by IFRS.
d. IFRS is silent on the issue.

6. The change in accounting policy inseparable from a change in accounting estimate should be
reported
a. As a correction of an error.
b. By restating the financial statements of all prior periods.
c. In the period of change and future periods if the change affects both.
d. As a disclosure after income from continuing operations.
7. Which should be reported when an entity changed from straight line depreciation to double
declining?
A. Cumulative effect of change in accounting policy
B. Proforma effect of retroactive application
C. Prior period error
D. An accounting change that should be reported currently and prospectively

8. Which is not a justification for a change in depreciation method?

a. A change in the estimated useful life
b. A change in the pattern of the estimated future benefit
c. To conform with the depreciation method prevalent in a particular industry
d. A change in the estimated future benefit

9. Which of the following should be reported when an entity changed the expected service life of
an asset?
A. Cumulative effect of change in accounting policy
B. Proforma effect of retroactive applicatio
C. Prior period error
D. An accounting change that should be reported in the period of change and future
periods

10. Which is the best explanation why accounting changes are classified into accounting policy
and accounting estimate?
a. The materiality of the change
b. Each change involves different method of recognition in the financial statements
c. The fact that some treatments are considered GAAP
d. The need to provide a favorable profit picture

QUESTION 17-16
1. Which is the first step is police hierarchy of guidance when selecting accounting policies?
A. Apply a standard from IFRS if it specfically relates to the transaction
B. Apply the requirements in IFRS dealing with similar and related issue:
C. Consider the applicability ente definitions, recognition criteria and measurement
concepts in the Conceptual Framework.
D. Consider the most recent pronouncements of other standard setting bodies.

2. In the absence of an accounting standard that applies specifically to a transaction, what is the
most authoritative source in developing and applying an accounting policy?
a. The requirement and guidance in the standard or interpretation dealing with
similar and related issue.
b. The definition, recognition criteria and measurement of asset, liability, income and
expense in the Conceptual Framework.
c. Most recent pronouncement of other standard-setting body.
 d. Accounting literature and accepted industry practice.

3. A change in accounting policy shall be made when

I. Required by law.
II. Required by an accounting standard or an interpretation
of the standard.
III. The change will result in more relevant or reliable information about the financial position,
financial performance and cash flows of the entity.
A. I and Ill only
B. II and III only
C. I and II only
D. I, II and III

4. Why is an entity permitted to change an accounting

The change would allow the entity to present a more
a. favorable profit picture.
b. The change would result in the financial statements providing more reliable and
relevant information about financial position, financial performance and cash
flows.
c. The change is made by the internal auditor.
d. The change is made by the CPA.

5. A change in accounting policy requires what kind of adjustment to the financial statements?
a. Current period adjustment
b. Prospective adjustment
c. Retrospective adjustment
d. Current and prospective adjustment

6. A change in accounting policy requires that the cumulative effect of the change for prior
periods should be reported as an adjustment to
a. Beginning retained earnings for the earliest period presented.
b. Net income for the period in which the change occurred.
c. Comprehensive income for the earliest period presented.
d. Shareholders' equity for the period in which the change occurred.

7. Which of the following is accounted for as a change in accounting policy?

a. A change in the estimated useful life of property, plant and equipment
b. A change from cash basis to accrual basis of accounting
c. A change from expensing immaterial expenditures to deferring and amortizing them
when material
d. A change in inventory valuation from FIFO to average method

8. A change in accounting policy includes all of the following, except

a. The initial adoption of an accounting policy to carry asset at revalued amount.
 b. The change from cost model to revaluation model in measuring property, plant and
equipment.
c. A change to a new accounting policy as required by a new standard.
d. A change from one method of depreciation to a different method of depreciation.

9. Which of the following should be treated as change in accounting policy?

a. A change is made in the method of calculating the provision for doubtful accounts
b. A change from cost model to fair value model in measuring investment property
c. An entity engaging in construction contract for the first time needs on accounting policy
to deal with this
d. All of these qualify as change in accounting policy

10. When it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy, the change is treated as
a. Change in accounting estimate with appropriate disclosure
b. Change in accounting policy
c. Correction of an error
d. Change in accounting estimate with no appropriate disclosure

QUESTION 17-17

1. An entity that changed an accounting policy voluntarily

a. Inform shareholders prior to taking the decision.
b. Account for the change retrospectively
c. Treau the effect of the change as a component of OCI
d. Treat the change prospectively.

2. Which statement best describes prospective application?

a. Recognizing a change in accounting policy in the current and future periods affected by
the change.
b. Correcting the financial statements as if a prior period error had never occurred
c. Applying a new accounting policy to transactions occurring after the date the
policy is changed.
d. Applying a new accounting policy to transactions as if that policy had always been
applied.

3. Which describes applying a new accounting policy to transactions as if that policy had always
been applied?
A. Retrospective application
B. Retrospective restatement
C. Prospective application
D. Prospective restatement
4. This means correcting the recognition, measurement and disclosure of amounts of elements
of financial statements as if a prior period error had never occurred.
a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement

5. If it is impracticable to determine the cumulative effect of an accounting change to any of the

prior periods, the accounting change should be accounted for
a. As a prior period error
b. On a prospective basis.
c. As a cumulative effect change in the income statement.
d. As an adjustment of retained earnings.

QUESTION 17- 19 Multiple Choice

1. Prior period errors

a. Do not include the chect ot a mistake in the application of accounting policy.
b. Do not affect the presentation of prior period comparative financial statements.
c. Do not require further disclosure.
d. Are reflected as adjustment of the opening balance of retained earnings of the
earliest period presented.

2. An example of a correction of an error in previously issued financial statements is a change

a. From FIFO method of inventory valuation to the average method.
b. In the service life of property, plant and equipment.
c. From cash basis to accrual basis of accounting.
d. In the tax assessment related to a prior period.

3. An entity that changed from cash basis to accrual basis of accounting during the current year
should report
a. Prior period adjustment resulting from the correction of an error.
b. Prior period adjustment resulting from the change in accounting policy.
c. Component of income from continuing operations.
d. Component of income from discontinued operations.

4. A change from an accounting principle that is not generally accepted to one that is generally
accepted should be reported as
a. Component of income from continuing operations
b. Component of discontinued operations
c. An adjustment of retained earnings
d. Component of other comprehensive income

QUESTION 17-19
1. A change in reporting entity is actually a change in
a. Accounting policy
b. Accounting estimate
c. Accounting method
d. Accounting concept

2. Which is not a change in reporting entity?

a. Changing the entities in combined financial statements
b. Disposition of a subsidiary or other business unit
c. Presenting consolidated statements in place of the separate financial statements of
individual entities
d. Changing specific subsidiaries that constitute the group for which consolidated financial
statements are presented.

3. What is the proper accounting treatment for a change in reporting entity?

a. Restatement of financial statements of all prior periods presented
b. Restatement of current period financial statements
c. Note disclosure and supplementary schedule
d. Adjustment of retained earnings and note disclosure

4. An entity has included in the consolidated financial statements this year a subsidiary acquired
several years ago that was appropriately excluded from consolidation last year. How should this
change be reported?
a. An accounting change that should be reported prospectively
b. An accounting change that should be reported retrospectively
c. A correction of an error
d. Neither an accounting change nor a correction of an error

QUESTION 17-20

1. During the current yea the finaty discovered that ending inventory reported in the financial
statements for the prior year was understated. How should the entity account for this
understatement?
a. Adjust the beginning inventory in the prior year.
b. Restate the financial statements with corrected balances for all periods presented.
c. Adjust the ending balance in retained earnings at current year-end
d. Make no entry because the error will self-correct

2. On March 15, 2023, the entity discovered that depreciation expense for 2022 was overstated.
The 2022 financial statements were authorized for issue on April 1, 2023. What must the entity
do?
a. Correct the 2022 financial statements before issuing them.
b. Reduce depreciation for 2023.
 c. Restate the depreciation expense reported for 2022 in the comparative figures of the
2023 financial statements.
d. Do nothing.

3. On April 1, 2023, the entity discovered that depreciation expense for 2022 was overstated.
The 2022 financial statements were authorized for issue on March 15, 2023. What must the
entity do?
a. Reissue the 2022 financial statements with the correct depreciation expense.
b. Reduce depreciation for 2023.
c. Restate the depreciation expense reported for 2022 in the comparative figures of
the 2023 financial statements.
d. Do nothing.