Why should the beginning retained earnings be adjusted for prior period errors and effects of change in accounting policy?
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- Sometimes financial statements contain errors. What type of liabilities may need correction as a prior period adjustment?f. What is the effect of these errors on Net Income, Earnings per Share, Total Liabilities and Retained Earnings if they are not discovered (detected) before the publication of the annual report?TRUE OR FALSE? A prior period error is not included in profit or loss but treated as an adjustment of the beginning balance of retained earnings.
- The effect of a revision of an accounting estimate must be recognised in profit and loss in which reporting periods? In the present, prior (by adjusting retained earnings) and future periods affected. In the present and future periods affected. In the present and prior reporting periods (by adjusting retained earnings). Not recognised in any period.Using IFRS, how should prior period errors that are discovered in a subsequent reporting period be recognized in the financial statements? a. As an adjustment to beginning retained earnings for the reporting period in which the error was discovered. b. As a note in the financial statements that the error was previously made but has since been corrected. c. In the current period if it’s not considered practicable to report it retrospectively. d. In the statement of comprehensive income.What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet?
- 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 cumulative effect change on the income statement b. as a prior period adjustment c. on a prospective basis d. as an adjustment to retained earningsWhat are the implications of a revised accounting estimate?Where a change in accounting estimates occurs, which of the following should be disclosed? A. The nature of the change and the impact on previous income statements The fact that the amount of the effect on future periods will not be disclosed because B. estimating that amount is impracticable and the reason for the change and comparative data to show the impact with and without the change The fact that the amount of the effect on future C. periods will not be disclosed because estimating that amount is impracticable D. The reason for the change and comparative data to show the effect with and without the change
- WHICH STATEMENT IS FALSE?A. If the net income of prior period is overstated because of the change in accounting policy, the effect is deducted from the beginning retained earnings.B. Equity is also the net assets.C. Prior period errors are shown as adjustment of the ending balance of retained earnings. If the net income of the prior period is overstated, the amount of the error uis deducted from retained earnings.D. In the conversion of preference chares into ordinary shares, if the total par or stated value of the ordinary shares is more than the original issue of the preference shares, the difference is charged to retained earnings.How are restrictions of retained earnings reported?How is a change in accounting estimate applied?
