XYZ Corporation, a manufacturing company, decides to change its depreciation method for its machinery from the straight-line
Question:
XYZ Corporation, a manufacturing company, decides to change its depreciation method for its machinery from the straight-line method to the double-declining balance method. However, the company is unable to determine the specific effects on each period due to various complexities.
If the cumulative effect of applying the accounting change can be determined, but the period-specific effects on all periods cannot, the cumulative effect should be applied to the carrying value of assets and liabilities at the beginning of the earliest period to which it can be determined. This ensures that the impact is reflected in the financial statements consistently.
ABC Retail, a leading retail chain, revises its estimated useful life for store fixtures from 10 years to 12 years. This revision is made based on a comprehensive review of the assets' performance and future expectations.
Recognizing a change in accounting estimate, ABC Retail should account for this situation. Changes in accounting estimates are applied prospectively, meaning they affect the current and future periods but do not require adjustment to prior periods.
Considering the scenarios presented, what is the appropriate treatment for the cumulative effect of an accounting change when period-specific effects cannot be determined?
Principles of Auditing and Other Assurance Services
ISBN: 978-0078025617
19th edition
Authors: Ray Whittington, Kurt Pany