The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2022. A machine was purchased on January 1, 2020, at a cost of $150,000. The machine has an estimated useful life of 10 years and a residual value of $9,000. What is the appropriate accounting?

Question

Quizplus · Accepted Answer

Since the method of depreciation was changed from double-declining-balance to straight-line in fiscal 2022, it is necessary to adjust the depreciation recorded in fiscal 2020 and 2021 to reflect the change in method. This is because the depreciation recorded using the double-declining-balance method in those years would have been higher than what would have been recorded under the straight-line method. This adjustment should be made retrospectively to ensure that the financial statements are presented fairly and accurately. A prospective adjustment from fiscal 2021 going forward would not reflect the impact of the change in method on the prior periods. An error correction implies that an error was made in the financial statements, which is not the case here.

The Method of Depreciation Was Changed from the Double-Declining-Balance Method