Question

The Stibbe Construction Company switched from the completed contract method to the percentage-of-completion method of accounting for its long-term construction contracts. This is an example of:
A) A change in accounting principle.
B) A change in accounting estimate.
C) An unusual item.
D) A discontinued operation.

Answer 1

Answer:

The correct answer is A

Explanation:

Change in accounting principle is the term which is defined as when the business choose among the GAAP (generally accepted accounting principles) or changes the method with which the principle is used. These principles impact the way or the method used, and then estimates the particular recalculation.

For example, company using the different method of depreciation after the 1st year of operations pr switching among FIFO to LIFO methods of inventory valuation.

So, in this case, the company switch or change the completed contract method to the percentage of completion accounting method. Therefore, the company uses the change in the accounting principle.

Answer 2

Answer:

A) A change in accounting principle.

Explanation:

Accounting principles are the guideline used to record and report financial transactions, however, changes in accounting principle are possible only on following three cases:

• If two or more principle are applicable in any particular case.
• Previous accounting principle applied are no longer accepted by GAAP or IFRS.
• The method of application of principle have changed.

These changes should made as per accounting framework.