ASSIGNMENT 2
CHAPTER 3
CONCEPTUAL FRAMEWORK AND ACCOUNTING STANDARDS
Encircle the letter of the best answer.
1. How should the effect of a change in accounting estimate be accounted for?
a. By restating amounts reported in financial statements of prior periods
b. By reporting proforma amounts for prior periods
c. As a prior period adjustment to beginning retained earnings
d. In the period of change and future periods if the change affects both
2. Which of the following 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 for prior periods
3. A change in the periods benefited by a deferred cost because additional information has been
obtained is
a. An accounting change that should be 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 that should be 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. The effect of a change in accounting policy that is inseparable from the effect of a change in
accounting estimate should be reported
a. By restating the financial statements of all prior periods
b. As a correction of an error
c. As a component of income from continuing operations, in the period of change and
future periods if the change affects both
d. As a separate disclosure after income from continuing operations.
6. When an entity changed from the straight line method of depreciation to the double declining
balance method, which of the following should be reported?
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
7. Which of the following 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
To God be all the Glory!
8. When an entity changed the expected service life of an asset, which of the following should be
reported?
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 in the period of change and future
periods
9. Accounting changes are often made even though this may be a violation of the accounting concept
of
a. Materiality
b. Consistency
c. Prudence
d. Objectivity
10. Which is not classified as an accounting change?
a. Change in accounting policy
b. Change in accounting estimate
c. Error in the financial statements
d. All of these are classified as an accounting change
11. Which is the best explanation why accounting changes are classified into change in accounting
policy and change in 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 and some are not.
d. The need to provide a favorable profit picture.
12. Why is retrospective treatment of a change in accounting estimate prohibited?
a. Change in accounting estimate is a normal recurring correction or adjustment which is the natural
result of the accounting process.
b. The retrospective treatment for any type of presentation is not allowed.
c. Retrospective treatment of a change in accounting estimate is prohibited under existing standard.
d. The existing standard is silent on the guidance
13. Which is the first step within the hierarchy of guidance when selecting accounting policies?
a. Apply a standard from IFRS if it specifically relates to the transaction.
b. Apply the requirements in IFRS dealing with similar and related issue.
c. Consider the applicability of the definitions, recognition criteria and measurement concepts in the
Conceptual Framework.
d. Consider the most recent pronouncements of other standard setting bodies
14. 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.
15. 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.
To God be all the Glory!
a. I and III only
b. II and III only
c. I and II only
d. I, II and III
16. Why is an entity permitted to change an accounting policy?
a. The change would allow the entity to present a more 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.
17. 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
18. 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.
19. 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
20. 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 in the measurement basis.
d. A change from one method of depreciation to a different method of depreciation.
21. 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 uncollectible accounts receivable.
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.
22. 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
23. An entity that changed an accounting policy voluntarily should
a. Inform shareholders prior to taking the decision.
b. Account for the change retrospectively.
c. Treat the effect of the change as a component of other comprehensive income.
d. Treat the change prospectively and adjust the effect of the change in the current period and future
periods.
To God be all the Glory!
24. 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 at which the policy is
changed.
d. Applying a new accounting policy to transactions as if that policy had always been applied.
25. Which term best 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
To God be all the Glory!