PK Precision Tools changed from accelerated depreciation to straight-line depreciation for some equipment it purchased eight...
PK Precision Tools changed from accelerated depreciation to straight-line depreciation for some equipment it purchased eight years ago. Management decided to account for the change as a change in accounting principle. Which of the following is an accurate statement regarding the company’s policy? Multiple Choice
A) This approach is conceptually correct and consistent with changes in inventory costing and other method changes.
B) The policy is inappropriate because companies cannot change depreciation methods for existing assets, only for assets placed in service after the date of the change, and the new method is simply applied prospectively.
C) The company should account for the change as a change in accounting estimate because when a company changes the way it depreciates an asset in midstream, the change would be made to reflect a change in estimated future benefits from the asset, the pattern of receiving the benefits, or knowledge about the benefits.
D) The policy is inappropriate because the change should be accounted for by the modified retrospective approach.
Homework Answers
Answer:- C) The company should account for the change as a change in accounting estimate because when a company changes the way it depreciates an asset in midstream, the change would be made to reflect a change in estimated future benefits from the asset, the pattern of receiving the benefits, or knowledge about the benefits.
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