SAINT MARY’S UNIVERSITY

3700 Bayombong Nueva Vizcaya, Philippines

Ballitoc, Janel
Intermediate ACC 3 9:30- 11:30
July 21,2020

1.Change in Estimate
This are changes that occur with accounts that require estimates and due to the
fact that estimates are done using the available data during the period more or less after
some time more information will be available which can lead to the change of the set
estimate.
Examples are depreciation which needs estimates to compute the annual depreciation
to be recorded.
For the Illustration
The entity is using a 2% for the Bad debts expense for the past few years but due to the
observation there is a greater possibility that uncollectible accounts will increase, the
entity changed the rate into 3%.

2.   Change in entity

It is the change relating to the structure of the business. The change affects the
ownership requirements, tax related issues and its legal protections.

Examples:

a) Sole proprietorship changing to a corporation.

b) Sole proprietor changing to a partnership.
c) Partnership changing to a corporation.
d) Partnership changing to a sole proprietor.
e) Corporation changing to another type of corporation (for example, S-Corp to C-
Corp).
f) Formation of a limited liability corporation (LLC) or becoming incorporated.
 The change of ownership is also considered to be part of the change in entity like
merger of companies and the transfer of ownership to another entity.
3.Correction of an error

Comparability of financial statements is one of the requirements of preparing

them. Which is one of the reason in correcting previous errors. Errors should also be
categorizing into material and immaterial to check if necessary adjustments are needed.

Example: If an entity has discovered an error in the end of the current period of a certain
account like accounts payable, If the amount is material necessary correction will be
done. Disclosures will be necessary.

This error mostly is due to the mathematical mistakes, misuse of the fact and data from
previous financial statements and human errors.