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CA Foundation · Accounting · Depreciation and Amortisation

A company wants to switch an asset from the straight-line method to the WDV method. Under AS 6 (as taught at Foundation level), how is such a change in method treated?

A change from straight-line to WDV is a change in accounting policy. Depreciation is recomputed under the new method from the date the asset was first used, and the resulting surplus or deficiency is adjusted in the year of change with disclosure. It is not applied prospectively only.

  1. ATreated as a change in accounting policy, with depreciation recalculated retrospectively from the date of use and the deficiency or excess adjusted in the year of changeCorrect
  2. BApplied only to future years with no adjustment for earlier years
  3. CIgnored, since the method of depreciation cannot be changed once chosen
  4. DAdjusted by revising the opening capital of the owner

Explanation

A change in depreciation method is a change in accounting policy. Depreciation is recomputed retrospectively from the date the asset was first used under the new method. Any excess or deficiency compared with what was charged is adjusted in the year of change, and the effect is disclosed. Prospective-only treatment is therefore wrong.

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