ABC Company has been in the business of manufacturing yarn. Five years ago, the company purchased machinery
Question:
ABC Company has been in the business of manufacturing yarn. Five years ago, the company purchased machinery worth Rs. 100 million, with a residual value of Rs. 10 million and useful life of 10 years. The company implemented a straight-line method for charging depreciation for the first five years. Recently a new CEO, Mr. Hamid, has been hired, and he advised the accountants to use the double-declining method for charging depreciation expenses.
Requirement:
You are advised to comment if the company adopts a new depreciation method for reporting, then in such case, which accounting principle is violated, and in order to justify the change, which accounting principle is required to be followed.
Financial Accounting Theory and Analysis Text and Cases
ISBN: 978-1118582794
11th edition
Authors: Richard G. Schroeder, Myrtle W. Clark, Jack Cathey