The method of depreciation was changed from the double-declining-balance method to the straight-line method in fiscal 2013. A machine was purchased on January 1, 2011, 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 in fiscal 2013, retrospective adjustment should be made for the years prior to the change. Therefore, retrospective adjustment for fiscal 2011 and 2012 is appropriate to ensure that the financial statements reflect the correct depreciation expense and accumulated depreciation for those years. This adjustment should be made in the current period's financial statements to correct the error. Prospective adjustment from fiscal 2012 going forward is not appropriate as it would not correct the error made in the past. Error correction for fiscal 2013 is not appropriate because the error was made in prior years, not in fiscal 2013.

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