Firms initially record property, plant, and equipment, sometimes referred to as fixed assets, at acquisition cost, the cash paid or the fair value of other consideration given in exchange for the asset. Which of the following is not true?
A)Acquisition cost includes all costs necessary to prepare the asset for its intended use.
B)Firms capitalize into the asset's carrying amount subsequent expenditures that extend the service life or increase the benefits of a fixed asset beyond those initially anticipated.
C)Buildings and equipment have a finite life, so firms must depreciate their acquisition cost less estimated salvage over the expected service life.
D)Firms may use a straight-line method or accelerated depreciation methods.
E)If new information becomes available that indicates that the expected service life or estimated salvage value differs significantly from that initially anticipated, the firm revises its depreciation claimed in prior years and restates the financial statements.

Question

Quizplus · Accepted Answer

The correct process when new information indicates a significant change in the expected service life or estimated salvage value of an asset is to adjust the depreciation expense in future periods, not to revise depreciation for prior years or restate past financial statements. Depreciation methods and estimates can be changed prospectively if new information comes to light, but past financial statements are not retroactively restated for such changes.

Firms Initially Record Property, Plant, and Equipment, Sometimes Referred to as Fixed