A change in the estimated useful life and residual value of machinery in the current year is handled as:
A)A retrospective change back to the date of acquisition as though the current estimated life and residual value had been used all along.
B)A prospective change from the current year through the remainder of its useful life, using the new estimates.
C)A cumulative adjustment to income in the current year for the difference in depreciation under the new versus old estimates.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

A change in the estimated useful life and residual value of machinery should be handled prospectively from the current year through the remainder of its useful life, using the new estimates. This means that no retrospective adjustment should be made, and only the depreciation for the remaining years should be affected by the new estimates. Making a cumulative adjustment to income in the current year for the difference in depreciation would not be appropriate since it would result in a distortion of income for prior periods.

A Change in the Estimated Useful Life and Residual Value