Enos Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?
A) Revisions in useful life are permitted if approved by the IRS.
B) Retroactive changes must be made to correct previously recorded depreciation.
C) Only future years will be affected by the revision.
D) Both current and future years will be affected by the revision.

Question

Quizplus · Accepted Answer

When revising the estimate of the useful life of an asset, both current and future years will be affected by the revision. This is because the change in estimate is considered to be a change in accounting estimate, and the effects of the change need to be recognized in the current period and future periods affected by the change. Retroactive changes are not required, but any adjustments to depreciation expense for prior periods should be made in the current period's financial statements. Approval from the IRS is not necessary for companies to change their estimate of the useful life of an asset.

Enos Company Has Decided to Change the Estimate of the Useful