Written Project Base on Case Study

From the case we discuss, LabCos report policy for recognizes tax from construction take in is reasonable. According to ASC605-35-25-61, an entity shall do the completed- subdue for which reasonably time-tested estimates cannot be made or for which inherent hazards make estimates doubtful. LabCo Comp whatsoever handlings a principle standard for its bill policy which is using Percentage of complection method substructure on how it determine the profit ( exist-to- comprise method) but in contract with Halibut, LabCo experiences unthought difficulties includes revising design, outsourcing engineering, price of material rising unforeseeably.These are the factors that make cost estimation harder. Percentage of Completion method is appropriate under ASC605-35-25-57, criteria B, The purchaser can be expected to satisfy all obligations under the contract and C, The contractor can be expected to perform all contractual obligations. Completion of contract method is used according t o ASC605-32-25-90, When lack of dependable estimatesinherent hazards relate to contract conditions or external factors that raise questions active contract estimates and about the ability of either the contractor or the customer to perform all obligations under the contract.Percentage of completion method is unbefitting for this contract, not only if because its difficult to estimate the cost, but excessively the product fails to fulfill the buyers need. In this case, choosing completion of contract is better decision based on previous experience, LabCo underestimate the cost and ability of complete the contract is the main reason forces them to change the policy. variety show in method of accounting from the percentage-of-completion to the completed-contract is considering change in accounting principle. In ASC250-10-45-2, it states clearly about company can use alternative accounting principle to better interpret the current financial issues. According to ASC250-10-45-1, a pr esumption exists that an accounting principle at one time adopted shallconsistent use of the same accounting principle from one accounting stage to some otherand with a,b criteria.Once a new accounting principle is adopted, entity should consistently practice. plate on ASC250-10-45-5, entity should use retrospective approach generate for the new accounting principle. There are three basic requirements to do A. Back to earlier accounting period, the change of cumulative effect must be showed once apply the new principle. B. adjustment of the isotropy of retained earning must be made. C. Each individual financial statement from preliminary period shall apply the new principle.In LabCos case, once it changes the revenue recognition principle, the prior years revenue will become less in completion of contract method. Retain Earning account must be high when using percentage of completion method. Therefore, retained earnings account needfully to be adjusted. For current year, a djustment shall be made to beginning balance of retained earnings. Base on ASC250-10-45-8, Retrospective application shall include only the take on effects of a change in accounting principle, including any related income tax effects.Using retrospective approach shall contain direct effects, in this case would be income tax from prior period which should be less than the entity actual paid. Disclosure, ASC250-10-50-2 An entity that issues interim financial statements shall provide the required disclosures in the financial statements of both the interim period of the change and the annual period of the change. When reporting a change in Principle, explanation of why use new principle should be included.Work CitedKieso, D. E., T. D. Warfield, and J. J. Weygandt.Intermediate accounting. 14th. Hoboken John Wiley& Sons, Inc. , 2012. Print. https//asc.fasb.org/advancedsearchresults