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Financial Reporting · Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Changes in Accounting Estimates under Ind AS 8 (CA Final FR)

Updated 5 October 2026 · Fact-checked

An accounting estimate is a monetary amount in the financial statements that is subject to measurement uncertainty. A change in estimate arises from new information or developments and is applied prospectively: you recognise its effect in profit or loss of the current period and any future periods affected. You do not restate prior periods.

Understand Changes in Accounting Estimates

Many items in financial statements cannot be measured exactly. Useful life of machinery, expected credit losses, inventory obsolescence and warranty provisions all depend on judgement. Ind AS 8 calls these accounting estimates: monetary amounts subject to measurement uncertainty. An entity develops an estimate using a measurement technique (an estimation technique such as an expected credit loss model, or a valuation technique such as a discounted cash flow) and inputs (the data fed into that technique).

A change in accounting estimate is an adjustment to the carrying amount of an asset or liability, or to the amount of periodic consumption of an asset, that results from new information or new developments. It is not a correction of an error. Estimates are revised because circumstances change, so the old figure was not wrong when made.

The treatment is prospective. You recognise the effect in profit or loss in the period of change if it affects only that period, or in the period of change and future periods if it affects both. Earlier periods are left untouched. If the change gives rise to changes in assets, liabilities or equity, you recognise it by adjusting the carrying amount of the related item in the period of change.

The key exam skill is classification. Ind AS 8 says a change in a measurement technique or in an input used to develop an estimate is a change in accounting estimate, unless it results from the correction of a prior period error. A change in measurement basis (for example, moving from cost to fair value for an item) is a change in accounting policy, which is applied retrospectively. If it is hard to tell a policy change from an estimate change, treat it as a change in estimate and disclose accordingly.

A prior period error is different again. It arises from failing to use, or misusing, reliable information that was available when the statements were approved and could reasonably have been obtained and considered. Errors are corrected retrospectively. Hindsight does not turn a poor estimate into an error, but ignoring available information does.

Key rules to remember

Treatment of change in estimate
Effect recognised prospectively in profit or loss of the current period and future periods affected; no restatement of comparatives
Any resulting change in asset or liability carrying amount is adjusted in the period of change.
Depreciation after revision of useful life
Revised annual depreciation = (Carrying amount at start of period of change − Revised residual value) ÷ Remaining useful life
Carrying amount is cost less accumulated depreciation (and impairment) up to the date of change. Remaining life is counted from the start of the year of change.
Classification rule
Change in measurement technique or input = change in estimate (unless it corrects an error); change in measurement basis = change in policy
If unclear which it is, treat it as a change in estimate.
Disclosure requirement
Disclose nature and amount of the change affecting the current period or expected to affect future periods
If the future effect cannot be estimated, disclose that fact.

How to solve Changes in Accounting Estimates questions

Use this sequence for any question that mentions a revision, a change of method or a changed figure.

  1. 1Read the facts and ask: why did the figure change? New information or developments point to an estimate. A different basis of measuring points to a policy. Ignored available information points to an error.
  2. 2Classify the item using the Ind AS 8 definitions: measurement technique or input is an estimate; measurement basis or presentation basis is a policy; omission or misuse of reliable information is an error.
  3. 3State the treatment: estimate is prospective, policy is retrospective, error is restated retrospectively.
  4. 4Compute the carrying amount at the start of the period of change (cost less depreciation charged to that date).
  5. 5Spread the revised carrying amount, less revised residual value, over the remaining useful life.
  6. 6Show the effect on the current year's profit or loss and note that prior years are not restated.
  7. 7Write the disclosure: nature and amount of the change, and the future effect or the fact that it cannot be estimated.

Quickest way: Three-question classification and prospective calculation

When to use it: Use in the exam hall when a case gives a changed depreciation method, useful life, provision rate or bad debt percentage and asks for the treatment and the amount.

  1. Ask: is it a change in measurement basis (policy) or a change in technique or input (estimate)?
  2. Write: Prospective. No restatement of earlier years.
  3. Compute: (Carrying amount at start of the year − revised residual value) ÷ remaining life.
  4. Compare with the old charge only if the question asks for the effect of the change.
  5. Close with a one-line disclosure statement.

Common mistakes in Changes in Accounting Estimates

  • Restating prior years' depreciation when useful life is revised.

    Students apply the retrospective rule they learnt for policy changes and errors.

    Fix: Remember that estimate changes use the revised figure only from the period of change onward. Comparatives stay as reported.

  • Calling a change in depreciation method a change in policy.

    The word method sounds like policy.

    Fix: A change in depreciation method is a change in the technique used to estimate the pattern of consumption of an asset, so treat it as a change in estimate and apply it prospectively.

  • Using the original cost instead of the carrying amount when recomputing depreciation.

    Students forget that part of the cost has already been charged.

    Fix: Always deduct accumulated depreciation first, then spread the remainder over the remaining life.

  • Treating a different estimate based on hindsight as an error.

    Students see the old figure was too high or low and assume it was wrong.

    Fix: Ask whether reliable information was available and ignored at the time. If not, it is a change in estimate.

  • Counting the original useful life instead of the remaining life.

    The question says total life is now revised, and students divide by that total.

    Fix: Subtract the years already elapsed from the revised total life, and divide by what remains.

  • Omitting disclosure.

    Students stop after the calculation.

    Fix: Add a line giving the nature and amount of the change and its expected future effect.

Worked examples

Example 1

Case: Meridian Ltd (an Ind AS company) bought a machine on 1 April 2023 for ₹10,00,000, with a useful life of 10 years and nil residual value, depreciated on the straight-line method. On 1 April 2026, after a technical review of changed usage, management revised the total useful life to 7 years from the date of purchase, with nil residual value. Compute depreciation for the year ended 31 March 2027 and state the treatment.

Show the solution
  1. Classification: the useful life is revised due to new information from the technical review, so this is a change in accounting estimate. Treatment is prospective.
  2. Annual depreciation charged earlier: ₹10,00,000 ÷ 10 = ₹1,00,000.
  3. Accumulated depreciation at 1 April 2026 (3 years: 2023-24, 2024-25, 2025-26): 3 × ₹1,00,000 = ₹3,00,000.
  4. Carrying amount at 1 April 2026: ₹10,00,000 − ₹3,00,000 = ₹7,00,000.
  5. Remaining life: revised total 7 years − 3 years elapsed = 4 years.
  6. Revised depreciation: (₹7,00,000 − nil) ÷ 4 = ₹1,75,000 per year.
  7. Prior years are not restated. The nature and amount of the change (increase in depreciation of ₹75,000 for the current year) is disclosed.

Answer: Depreciation for 2026-27 is ₹1,75,000, charged prospectively as a change in accounting estimate. Earlier years are not restated, and the change is disclosed.

Example 2

Case: Kavya Traders Ltd (an Ind AS company) has always valued a class of inventory at cost under the weighted average formula. In the current year it decides to use the FIFO formula for that class, because it believes FIFO gives a more reliable view. Separately, it has revised its expected credit loss rate on trade receivables from 3% to 5% after a major customer entered insolvency. Classify each change and state the treatment.

Show the solution
  1. Change from weighted average to FIFO: this is a change in the cost formula, which is an accounting policy under Ind AS 2 (selection among permitted cost formulas). It is not an estimate.
  2. Treatment of the policy change: apply retrospectively under Ind AS 8 (adjust opening balance of retained earnings of the earliest prior period presented and restate comparatives), unless impracticable, and disclose the required information. The change must be required by an Ind AS or give more reliable and relevant information.
  3. Change in expected credit loss rate from 3% to 5%: the input to the expected credit loss technique has changed because of new information (the customer's insolvency). This is a change in accounting estimate.
  4. Treatment of the estimate change: apply prospectively. Recognise the additional loss allowance in profit or loss of the current period, with no restatement of comparatives.
  5. Disclose the nature and amount of the estimate change, and the policy change disclosures separately.

Answer: The FIFO switch is a change in accounting policy, applied retrospectively. The credit loss rate revision is a change in accounting estimate, applied prospectively with the effect recognised in current period profit or loss.

Exam tips

  • Start every answer with a one-line classification: estimate, policy or error. Markers award marks for this first.
  • Show the carrying amount at the date of change explicitly in depreciation questions. Many marks lie in that step.
  • State the treatment in words (prospective or retrospective) even if the question seems to ask only for numbers.
  • In MCQs, watch for traps such as a depreciation method change presented as policy, or hindsight presented as an error.
  • Add a brief disclosure line in written answers. It is easy to add and often forgotten.

Practice questions from Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors

Changes in Accounting Estimates in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Changes in Accounting Estimates: frequently asked questions

Is a change in depreciation method a change in estimate or policy?

It is a change in accounting estimate. The depreciation method reflects the expected pattern of consumption of the asset's benefits, which is an estimate. Apply it prospectively and disclose it.

How is a change in estimate different from an error?

A change in estimate comes from new information or developments after the original figure was made. An error comes from misusing or ignoring reliable information that was available. Errors are corrected retrospectively, estimate changes prospectively.

What are measurement techniques and inputs in Ind AS 8?

A measurement technique is the method used to develop an estimate, such as an expected credit loss model or a discounted cash flow valuation. Inputs are the data used in that technique. Changing either is a change in estimate unless it corrects an error.

Do I restate comparatives for a change in estimate?

No. You recognise the effect in the current period and any future periods affected. Comparative figures remain as originally reported.