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Economic events to prompt accounting changes

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2. a. If management reports truthfully, what economic events are likely to prompt the following accounting changes?

* Increase in the estimated life of depreciable assets

* Decrease in the uncollectibles allowance as a percentage of gross receivables

* Recognition of revenues at the point of delivery, rather than at the point cash is received

* Capitalization of a higher proportion of software R&D costs

b. What features of accounting, if any, would make it costly for dishonest managers to make the same changes without any corresponding economic changes?

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Solution Summary

The solution examines economic events to prompt accounting changes. The features of accounting to make costly for dishonest managers is examined.

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Answer:
2. (a):

Increase in the estimated life of depreciable assets: As we know that estimated life of depreciable asset is based on estimation, some economic events like increase in the market value of the depreciable asset and decrease in production causing less use of the depreciable asset used to increase the estimated life of depreciable asset.

Decrease in the uncollectible allowance as a percentage of gross receivables: Managers ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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