A company changes its depreciation method from an accelerated system to straight line. Which of the following would normally be true?
I. The change would be discussed in the auditor's letter.
II. The cumulative effect of the change would appear net of tax on the income statement.
III. The change would appear in cash flow from operations as a cash inflow.
IV. The change would be mentioned in the footnotes.
A) I, II, III and IV
B) I, II and III
C) II and IV
D) I, II and IV

Question

Quizplus · Accepted Answer

I. The change in depreciation method would likely be disclosed in the auditor's letter to provide transparency to stakeholders.

II. The cumulative effect of the change would appear net of tax on the income statement as a separate line item.

III. The change in depreciation method does not have a direct impact on cash flows from operations, so it would not appear as a cash inflow.

IV. The change in depreciation method would be mentioned in the footnotes of the financial statements to provide additional information on the accounting policies used.

A Company Changes Its Depreciation Method from an Accelerated System