Reference no: EM132615620
Question - During November 2012, Kiran Ltd. discovered that a $280,000 capital asset acquired on January 1, 2008 had been depreciated in prior years using a ten year straight-line basis. However, according to the company's accounting policy in effect at that timet this asset should have been depreciated using a 10% declining-balance basis, to conform to established industry practice. No depreciation had yet been recorded in respect of this asset for the fiscal period ending December 31, 2012.
Kiran Ltd. is a private company accounting under ASPE, and has since established the following additional information in preparing the comparative financial statements for the 2012 fiscal year.
2012 2011
Beginning retained earnings 250,000 160,000
Net income
- 2012 inclusive of correct depreciation
- 2011 as previously reported 170,000 120,000
Dividends declared 50,000 30,000
REQUIRED -
a) Indicate the nature of the accounting change required to Kiran Ltd's previously reported results, and the accounting treatment applicable thereto.
b) Prepare the 2012 journal entries to effect the above restatement, and to record the depreciation for the current year. Ignore all income tax effects.
c) Prepare Kiran Ltd's comparative retained eamings statement for 2012. Ignore all income tax effects and note disclosures.