While reviewing Zosias financial statements, your boss was concerned that they had change the method of accounting
Question:
While reviewing Zosia’s financial statements, your boss was concerned that they had change the method of accounting for depreciation from 130% declining balance to straight line for their equipment. The footnote explaining the accounting change provided the following explanation. The original reason that Zosia used 130% declining balance was that based on an engineering study that the increase in maintenance costs of the equipment as it aged mirrored the decline in the depreciation expense so the sum of the two remained constant year to year. The reason they changed to straight line is that a current study determines that even though maintenance costs still increase with the age of the equipment, they are significantly lower than in the past. Evaluate whether you believe the change was warranted.
Financial Accounting an introduction to concepts, methods and uses
ISBN: 978-0324789003
13th Edition
Authors: Clyde P. Stickney, Roman L. Weil, Katherine Schipper, Jennifer Francis