Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

Financial Accounting

3. Accrual Accounting Concepts

Adjusting Entries: Depreciation

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Multiple Choice

A change in the residual value of a depreciable asset is treated as a change in accounting:

principle

policy

estimate

error

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Verified step by step guidance

Understand the concept of residual value: Residual value is the estimated amount that an entity expects to receive from the disposal of an asset at the end of its useful life, minus any disposal costs.

Recognize the nature of the change: A change in the residual value of a depreciable asset is considered a change in accounting estimate, not a change in accounting principle or policy. This is because estimates are based on future expectations, which can vary over time.

Review the accounting treatment for changes in estimates: According to accounting standards, changes in accounting estimates are applied prospectively. This means the change affects the current and future periods, but does not require adjustments to prior periods.

Determine the impact on depreciation: When the residual value changes, the depreciation expense for the remaining useful life of the asset must be recalculated. Use the formula for straight-line depreciation:

D = \frac{C - R}{U}

, where D is depreciation expense, C is the cost of the asset, R is the residual value, and U is the remaining useful life.

Update the financial statements: Adjust the depreciation expense in the current and future periods based on the revised residual value. Ensure proper disclosure of the change in accounting estimate in the notes to the financial statements.