ExpertMedium1 markMultiple Choice
CPA · Question 36 · Area III: Select Transactions
A company changes its inventory method from LIFO to FIFO. How should this change be reported?
A company changes its inventory method from LIFO to FIFO. How should this change be reported?
Answer options:
A.
Retrospectively, by adjusting prior period financial statements
B.
Prospectively, affecting only current and future years
C.
As a cumulative effect of change in accounting principle in current Net Income
D.
As a correction of an error
How to approach this question
Change in Principle (e.g., LIFO to FIFO) -> Retrospective. <br/>Exception: Change TO LIFO is often Prospective if past data is unavailable. But LIFO to FIFO is Retrospective.
Full Answer
A.Retrospectively, by adjusting prior period financial statements✓ Correct
A
A change in accounting principle (like LIFO to FIFO) requires retrospective application to all prior periods presented, unless it is impracticable to do so.
Common mistakes
Confusing with Change in Estimate (Prospective).
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