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

8. Long Lived Assets

Change in Estimate: Depreciation

Financial Accounting

8. Long Lived Assets

Change in Estimate: Depreciation

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

When there is a change in the estimated service life of equipment, how should the change be accounted for?

Retrospectively, by restating prior period financial statements

By eliminating all accumulated depreciation and recalculating from the asset's acquisition date

By recording the change as a prior period adjustment to retained earnings

Prospectively, by adjusting depreciation expense in the current and future periods only

Previous problemNext problem

Verified step by step guidance

Understand the concept of a change in accounting estimate: A change in the estimated service life of equipment is considered a change in accounting estimate, not an error or a change in accounting principle. Changes in accounting estimates are accounted for prospectively, meaning they affect the current and future periods only.

Review the accounting treatment for changes in estimates: Unlike errors or changes in accounting principles, changes in estimates do not require retrospective adjustments to prior period financial statements or prior period adjustments to retained earnings.

Determine the impact on depreciation: When the estimated service life of equipment changes, the remaining book value of the asset is used to calculate depreciation expense over the revised remaining useful life. Accumulated depreciation is not eliminated or recalculated from the acquisition date.

Adjust depreciation expense prospectively: Calculate the new depreciation expense starting from the current period using the updated service life estimate. This adjustment will apply to the current and future periods only, without altering prior period financial statements.

Ensure proper disclosure: In the financial statements, disclose the nature of the change in estimate, the reasons for the change, and its impact on the financial results for the current and future periods, as required by accounting standards.