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

Change in Accounting Estimate under Ind AS 8

Updated 11 October 2026 · Fact-checked

A change in accounting estimate is a revision of a judgement-based amount because circumstances, new information or experience have changed. Ind AS 8 requires prospective treatment: you put the effect in profit or loss of the current period, and future periods if they are affected. You do not restate prior periods. Adjust the carrying amount if assets, liabilities or equity are affected.

Understand Changes in Accounting Estimates

Many items in financial statements cannot be observed directly. You cannot see the exact useful life of a machine or the exact amount of expected credit losses. So the entity develops an accounting estimate using judgements or assumptions based on the latest available, reliable information. Ind AS 8 gives examples: loss allowance for expected credit losses (Ind AS 109), net realisable value of inventory (Ind AS 2), fair value of an asset or liability (Ind AS 113), depreciation of property, plant and equipment (Ind AS 16) and a warranty provision (Ind AS 37).

An estimate is built from measurement techniques and inputs. Techniques include estimation techniques (such as an ECL model) and valuation techniques (such as those used for fair value). The word 'estimate' in Ind AS sometimes means just an input, which is not itself an accounting estimate as defined.

Estimates get revised. An entity may need to change an estimate if the circumstances on which it was based change, or because of new information, new developments or more experience. By nature, such a change does not relate to prior periods and is not the correction of an error. The effects of a change in an input or in a measurement technique are changes in accounting estimates, unless they result from the correction of prior period errors.

The treatment is prospective. You recognise the effect in profit or loss in the period of the change if only that period is affected. If future periods are also affected, you recognise it in the period of the change and those future periods. A change in ECL allowance affects only the current period. A change in useful life affects current and future depreciation.

To the extent the change alters assets or liabilities, or relates to an equity item, you adjust the carrying amount of that item in the period of the change. For depreciation, this means the revised carrying amount is spread over the remaining useful life.

A change in measurement basis is a change in accounting policy, not an estimate. Example: moving from cost to a different basis of measuring an item. When it is hard to tell policy from estimate, Ind AS 8 says treat it as a change in estimate.

Key rules to remember

Treatment of change in estimate
Prospective: current period, or current + future periods affected
No restatement of prior periods and no prior period adjustment.
Revised depreciation (straight line)
(Carrying amount at date of change − Revised residual value) ÷ Remaining useful life
Applied from the date of the change; the depreciation method is assumed unchanged. Remaining life is counted from the date of change.
Asset, liability or equity effect
Adjust carrying amount of the related item in the period of the change
Applies to the extent the change gives rise to changes in assets and liabilities or relates to equity.
Policy vs estimate test
Change in measurement basis = policy change; hard to distinguish = estimate
Policy changes are applied retrospectively when voluntary; estimates are applied prospectively.
Input or technique change
Change in input or measurement technique = change in estimate
Unless it results from correction of prior period errors.

How to solve Changes in Accounting Estimates questions

Use this sequence for any question on a change in estimate, whether theory or numbers.

  1. 1Identify what is being changed: a basis of measurement, or an amount that rests on judgement (life, residual value, ECL, NRV, warranty, fair value).
  2. 2Classify it. Change in measurement basis means policy. Change in input or technique, or revised judgement, means estimate. If unclear, treat as estimate.
  3. 3Check it is not an error: was the earlier figure wrong based on information available then? If yes, go to prior period error rules.
  4. 4State the treatment: prospective, with no restatement of comparatives.
  5. 5For depreciation, compute the carrying amount at the date of change, deduct the revised residual value, and divide by the remaining life.
  6. 6Decide the periods affected: current only (such as ECL) or current and future (such as useful life).
  7. 7Pass the journal or the profit effect and mention that the carrying amount of the asset or liability is adjusted.
  8. 8Conclude with a short disclosure note on the nature and amount of the change.

Quickest way: Three-question shortcut

When to use it: For MCQs and short case questions where you must decide the treatment in under a minute.

  1. Ask: is it a change of measurement basis? If yes, it is a policy change (retrospective if voluntary).
  2. Ask: was the old figure wrong from the start? If yes, it is an error (restate).
  3. Otherwise it is an estimate: apply from the date of change, no restatement.
  4. For depreciation: new charge = (carrying amount − new residual value) ÷ remaining life.

Common mistakes in Changes in Accounting Estimates

  • Restating prior years' depreciation after revising the useful life.

    Students mix up estimate changes with policy changes or errors, which need retrospective treatment.

    Fix: Estimate changes are prospective. Leave comparatives untouched and revise only the charge from the date of change.

  • Dividing the revised total life into original cost instead of using the carrying amount.

    Students forget that depreciation already charged is not reversed.

    Fix: Use carrying amount at the date of change, less revised residual value, over the remaining life.

  • Treating a change in measurement basis as an estimate change.

    Both seem to affect valuation, so they look alike.

    Fix: A change in measurement basis is a policy change. Only when you cannot distinguish the two do you default to estimate.

  • Calling a correction of a wrong earlier figure an estimate change.

    The word 'revision' appears in both.

    Fix: If the earlier figure was wrong on information available then, it is an error corrected retrospectively. Information that arises later gives an estimate change.

  • Showing the effect only in profit or loss, ignoring carrying amounts.

    Students focus on the expense line.

    Fix: State that, where the change affects assets, liabilities or equity, the related carrying amount is adjusted in the period of change.

Worked examples

Example 1

Sundaram Textiles Ltd bought a machine on 1 April 2023 for ₹50,00,000. It was depreciated on the straight-line method over 10 years with nil residual value. On 1 April 2026, management reassesses the remaining useful life as 5 years from that date (total 8 years) and the residual value as ₹5,00,000. Compute depreciation for the year ended 31 March 2027 and explain the treatment.

Show the solution
  1. Annual depreciation to date: ₹50,00,000 ÷ 10 = ₹5,00,000.
  2. Depreciation for 3 years (to 31 March 2026): ₹5,00,000 × 3 = ₹15,00,000.
  3. Carrying amount on 1 April 2026: ₹50,00,000 − ₹15,00,000 = ₹35,00,000.
  4. Depreciable amount: ₹35,00,000 − ₹5,00,000 = ₹30,00,000.
  5. Revised annual depreciation: ₹30,00,000 ÷ 5 = ₹6,00,000.
  6. Treatment: this is a change in accounting estimate, applied prospectively. Prior years are not restated. The ₹6,00,000 is charged in 2026-27 and in each of the remaining years.

Answer: Depreciation for 2026-27 is ₹6,00,000. The change is prospective and prior years are not restated.

Example 2

Kaveri Traders Ltd had a loss allowance of ₹8,00,000 on trade receivables at 31 March 2026, recognised under Ind AS 109. At 31 March 2027, using its same ECL model but with updated recovery experience, the required allowance is ₹11,00,000. Another case: the company changes from one inventory-cost basis to a different one that Ind AS 2 permits. Classify each and state the treatment.

Show the solution
  1. Case 1: updated recovery experience is new information and more experience. It is a change in accounting estimate.
  2. Increase in allowance: ₹11,00,000 − ₹8,00,000 = ₹3,00,000.
  3. An ECL allowance change affects only the current period, so ₹3,00,000 is charged to profit or loss in 2026-27 and the carrying amount of receivables is reduced accordingly.
  4. Case 2: the change of inventory-cost basis is a change in measurement basis, so it is a change in accounting policy, not an estimate.
  5. It is applied retrospectively if voluntary, unless specific transitional provisions apply.

Answer: Case 1 is an estimate change: ₹3,00,000 additional charge in 2026-27 only, with no restatement. Case 2 is a policy change, applied retrospectively when voluntary.

Exam tips

  • For numbers, always compute carrying amount at the date of change first, then spread it over remaining life. Show each line for step marks.
  • In theory answers, write the words 'prospectively' and 'not a correction of an error', and say prior periods are not restated.
  • Use the policy vs estimate rule: a change in measurement basis is a policy; if hard to tell, treat as estimate. Examiners test this in MCQs.
  • Cite one example of current-only effect (ECL allowance) and one of current and future effect (useful life) to show you understand both limbs.
  • Check the date of change and count remaining life from that date, not from the original purchase date.

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

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 useful life a change in policy or estimate?

It is a change in accounting estimate. It is applied prospectively, so depreciation for the current and remaining years is revised and earlier years are not restated.

How is a change in estimate different from an error?

A change in estimate arises from new information, developments or experience and does not relate to prior periods. An error is a misstatement of an earlier period that is corrected retrospectively.

Does a change in valuation technique count as a change in estimate?

Yes. The effects of a change in an input or a measurement technique are changes in accounting estimates, unless they result from the correction of prior period errors.

What if I cannot tell whether a change is a policy or an estimate?

Ind AS 8 says that when it is difficult to distinguish them, the change is treated as a change in accounting estimate.