A company that changes from the declining-balance method of depreciation for previously recorded assets to the straight-line method should report the change as a(n)
A) change in accounting principle.
B) change in accounting estimate.
C) prior period adjustment.
D) extraordinary item.

Question

Quizplus · Accepted Answer

This is considered a change in accounting estimate effected by a change in accounting principle. When a company switches from the declining-balance method to the straight-line method, it is essentially revising its estimate of the pattern in which the asset's economic benefits are consumed. According to accounting standards, such changes are accounted for prospectively, not retrospectively, and do not require adjustment of prior periods.

A Company That Changes from the Declining-Balance Method of Depreciation