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Change in estimate, change in entity, correction of errors

Discuss the accounting procedures for and illustrate the following with examples

a) Change in estimate

b) Change in entity

c) Correction of an error

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Change in estimate, change in entity, and correction of errors
Change in estimate, change in entity, correction of errors

Discuss the accounting procedures for and illustrate the following with examples

a) Change in estimate
There are instance when you need to make estimates of uncertain future events. For example, Depreciation entails estimates not only of the useful lives of depreciable assets, but their anticipated salvage values as well. Anticipating uncollectible account receivable, predicting warranty expenses, amortizing intangible assets, and making actuarial assumptions for pension benefits are but a few of the accounting tasks that require estimates.

Therefore, estimates are an inherent aspect of accounting. However, the estimates routinely turn out to be wrong. Estimate must be revises when new information and experience arises. Changes in estimates are accounting for prospectively. In other words, when estimate is revised, the prior financial statements are not restated, nor are a cumulative effect of the change included in current income. Instead, the company merely incorporates the new estimate in any related accounting determinations from then revision on. ...

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