Question

Part V: Short Analysis (6 points) Jerry Prior, Beeler Corporation's controller, is concerned that net income may be lower this year. He is afraid upper-level management might recommend cost reductions by laying off accounting staff, including him. Prior knows that depreciation is a major expense for Beeler. The company currently uses the straight-line method for financial reporting. Beeler Corporation's equipment has a carrying value of $2,000,000 and a fair value of $2,180.000. Prior is thinking of increasing the estimated useful lives and the salvage values? He believes this will decrease depreciation expense. And as a result, he may be able to save his job and those of his staff. Instructions Answer the following questions. (a) Explain how should a company account for change in salvage value and useful life. (2 points) (b) Who are the stakeholders in this scenario (identify at least two stakeholders)? Please note, stakeholder is someone who has an interest in a given scenario or decision. (2 points) (C) What should Prior do? (2 points)

Answer 1

Mr Prior is planning to revising its salvage value and estimated life as IAS 8 it is change in accounting estimate and not a change in accounting policy

Answer of sub question

a) Whenever there is change in accounting estimate then effect of such should be prospectively and not retrsopectively. so in this question Mr pior should give the effect of change in salvage value and useful life on depreiciation on prospectively basis and not retrospectively.

b) A stakeholder is any person, organization, social group, or society at large that has a stake in the business. Thus, stakeholders can be internal or external to the business. A stake is a vital interest in the business or its activities.

stakeholder who have interest in current scenario is as follow

1) Upper Level Management

2) Employee

C) Prior should revise his estimates and should pass entry for the prospectively effect of depriciation. There should an appropriate disclosure should be made of Mr. Prior in financial statement regarding change in accounting estimate.