Change from Fifo to Lifo

AC302 Unit 9

Berkley Company, a manufacturer of many different products, changed its inventory method from FIFO to LIFO. The LIFO method was determined to be preferable. In addition, Berkley changed the residual values used in computing depreciation for its office equipment. It made this change on January 1, 2010 because it obtained additional information. On December 31, 2010, Berkley change the specific subsidiaries comprising the group of companies for which consolidated financial statements are presented.

REQUIRED:

What kind of accounting change is each of the preceding three situations? For each situation, indicate whether or not the company should show:

The retrospective application of a new accounting principle.

The effects on the financial statements of the current and future periods.

Restatement of the financial statements of all prior periods.

Why does the company have to disclose a change in accounting principle?

See the syllabus for the discussion board requirements.

Professor and class,

Changing from FIFO to LIFO is a voluntary change in accounting principle. Berkley should account for the change using the retrospective application of the new accounting principle. According to our text, Berkley needs to compute the cumulative effect of the change on the prior financial statements, adjust book values of assets and liabilities affected, as well as retained earnings and income taxes (Nikolai, Bazley & Jones, p. 1221, 2009). Berkley also adjusts each financial statement from prior periods to reflect the new principle and disclose the change.

When changing the residual value of the office equipment, Berkley would account for the change prospectively instead of retrospectively. Therefore, they would not restate the prior financial statements. Berkley would simply depreciate the remaining book value over its remaining service life. Berkley would disclose the effect on the change to its income from operations, net income, and...