CA Foundation Exam > CA Foundation Questions > Change in accounting estimate means:a)Differe...
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Change in accounting estimate means:
- a)Differences arising between certain parameters estimated earlier and re- estimated during the current period.
- b)Differences arising between certain parameters estimated earlier and actual results achieved during the current period.
- c)Differences arising between certain parameters re-estimated during the current period and actual results achieved during the current period.
- d)Both (a) and (b)
Correct answer is option 'D'. Can you explain this answer?
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Change in accounting estimate means:a)Differences arising between cert...
Change in accounting estimate means:
A change in accounting estimate refers to a revision in the estimated value of certain parameters used in the preparation of financial statements. These changes occur when new information becomes available or when the circumstances related to the estimate change. The correct answer to the question is option 'D', which states that a change in accounting estimate involves differences arising between certain parameters estimated earlier (option 'a') and differences arising between certain parameters estimated earlier and actual results achieved during the current period (option 'b').
Explaining the answer:
To understand the answer in detail, let's break it down into two parts:
Part 1: Differences arising between certain parameters estimated earlier
- When preparing financial statements, certain estimates are made for various parameters such as useful life of an asset, allowance for doubtful accounts, inventory obsolescence, warranty expenses, etc.
- These estimates are based on management's judgment, historical data, industry trends, and other relevant information available at the time.
- However, due to the inherent uncertainty involved in estimating future events, there may be a need to revise these estimates as new information becomes available or circumstances change.
- For example, if a company estimated the useful life of its machinery to be 10 years but later realizes that it should be revised to 8 years based on the current condition and usage patterns, it represents a change in accounting estimate.
- Therefore, option 'a' correctly states that a change in accounting estimate involves differences arising between certain parameters estimated earlier.
Part 2: Differences arising between certain parameters estimated earlier and actual results achieved during the current period
- In addition to the revision of estimates, a change in accounting estimate also takes into account the differences that arise between the estimated value and the actual results achieved during the current period.
- For example, a company may estimate that its bad debt expense for the year will be $10,000 based on historical data and industry trends. However, at the end of the year, it determines that the actual bad debt expense is $12,000. This represents a difference between the estimated value and the actual result achieved.
- Therefore, option 'b' correctly states that a change in accounting estimate involves differences arising between certain parameters estimated earlier and actual results achieved during the current period.
Conclusion:
In conclusion, a change in accounting estimate occurs when there are differences between certain parameters estimated earlier and when there are differences between those estimates and the actual results achieved during the current period. These changes are necessary to ensure that the financial statements reflect the most accurate and reliable information available.
A change in accounting estimate refers to a revision in the estimated value of certain parameters used in the preparation of financial statements. These changes occur when new information becomes available or when the circumstances related to the estimate change. The correct answer to the question is option 'D', which states that a change in accounting estimate involves differences arising between certain parameters estimated earlier (option 'a') and differences arising between certain parameters estimated earlier and actual results achieved during the current period (option 'b').
Explaining the answer:
To understand the answer in detail, let's break it down into two parts:
Part 1: Differences arising between certain parameters estimated earlier
- When preparing financial statements, certain estimates are made for various parameters such as useful life of an asset, allowance for doubtful accounts, inventory obsolescence, warranty expenses, etc.
- These estimates are based on management's judgment, historical data, industry trends, and other relevant information available at the time.
- However, due to the inherent uncertainty involved in estimating future events, there may be a need to revise these estimates as new information becomes available or circumstances change.
- For example, if a company estimated the useful life of its machinery to be 10 years but later realizes that it should be revised to 8 years based on the current condition and usage patterns, it represents a change in accounting estimate.
- Therefore, option 'a' correctly states that a change in accounting estimate involves differences arising between certain parameters estimated earlier.
Part 2: Differences arising between certain parameters estimated earlier and actual results achieved during the current period
- In addition to the revision of estimates, a change in accounting estimate also takes into account the differences that arise between the estimated value and the actual results achieved during the current period.
- For example, a company may estimate that its bad debt expense for the year will be $10,000 based on historical data and industry trends. However, at the end of the year, it determines that the actual bad debt expense is $12,000. This represents a difference between the estimated value and the actual result achieved.
- Therefore, option 'b' correctly states that a change in accounting estimate involves differences arising between certain parameters estimated earlier and actual results achieved during the current period.
Conclusion:
In conclusion, a change in accounting estimate occurs when there are differences between certain parameters estimated earlier and when there are differences between those estimates and the actual results achieved during the current period. These changes are necessary to ensure that the financial statements reflect the most accurate and reliable information available.
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Change in accounting estimate means:a)Differences arising between certain parameters estimated earlier and re- estimated during the current period.b)Differences arising between certain parameters estimated earlier and actual results achieved during the current period.c)Differences arising between certain parameters re-estimated during the current period and actual results achieved during the current period.d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?
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Change in accounting estimate means:a)Differences arising between certain parameters estimated earlier and re- estimated during the current period.b)Differences arising between certain parameters estimated earlier and actual results achieved during the current period.c)Differences arising between certain parameters re-estimated during the current period and actual results achieved during the current period.d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Change in accounting estimate means:a)Differences arising between certain parameters estimated earlier and re- estimated during the current period.b)Differences arising between certain parameters estimated earlier and actual results achieved during the current period.c)Differences arising between certain parameters re-estimated during the current period and actual results achieved during the current period.d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Change in accounting estimate means:a)Differences arising between certain parameters estimated earlier and re- estimated during the current period.b)Differences arising between certain parameters estimated earlier and actual results achieved during the current period.c)Differences arising between certain parameters re-estimated during the current period and actual results achieved during the current period.d)Both (a) and (b)Correct answer is option 'D'. Can you explain this answer?.
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