Practice Questions on Unit 7- Change in accounting estimates

Note: We encourage you to attempt this with complete conscience within a 60 minutes time frame. Please feel free to refer to the ICAI Material and TowardsCA study notes before attempting the same. You can e-mail your answers to towardsca@gmail.com for verification.

Direct Questions:

1. Define “Valuation Principles” in the context of financial accounting and explain their importance in determining the value of assets and liabilities.
2. How do valuation principles differ from accounting estimates, and how are they used in financial reporting?
3. Discuss the factors that influence the selection and application of valuation principles in different accounting scenarios.
4. What are the disclosure requirements for valuation principles in financial statements, and why are they necessary?
5. Explain the concept of “Fair Value” and its significance in the valuation of assets and liabilities.

Practical Questions:

1. ABC Ltd. holds a portfolio of investment securities. Describe the valuation principle that ABC Ltd. should apply to determine the fair value of these securities for reporting purposes, and discuss the potential impact on the company’s financial statements.
2. DEF Company operates in the manufacturing industry and has a significant amount of inventory. Explain the valuation principle that DEF Company should adopt to determine the value of its inventory and discuss the reasons behind this choice.
3. XYZ Corporation is considering the acquisition of a subsidiary. Discuss the valuation principle that XYZ Corporation should apply to assess the fair value of the identifiable assets and liabilities of the subsidiary.
4. LMN Ltd. has entered into a long-term construction contract. Explain the accounting estimate that LMN Ltd. should make to determine the percentage of completion and revenue recognition for the contract, and discuss the potential impact on the company’s financial statements.
5. PQR Enterprises has significant intangible assets on its balance sheet, such as patents and trademarks. Discuss the valuation principle that PQR Enterprises should follow to assess the fair value of these intangible assets and explain how this valuation affects the company’s financial statements.