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CA Foundation · Accounting · Depreciation and Amortisation

A firm changes its depreciation method from written down value to straight-line. Under AS 6, how is this change treated?

A change from written down value to straight-line is allowed under AS 6 only if required by statute, needed to comply with an accounting standard, or if it gives a more appropriate presentation of the financial statements. It cannot be changed freely to manage profits, and disclosure is required.

  1. AAdopted only if required by statute or for compliance with an accounting standard, or if it gives a more appropriate presentationCorrect
  2. BMade freely each year to smooth profits
  3. CApplied only to assets bought after the change, with no disclosure
  4. DNever permitted under any circumstances

Explanation

AS 6 allows a change in depreciation method only if required by statute, for compliance with an accounting standard, or if it results in a more appropriate preparation or presentation of the financial statements. Where changed, depreciation is recomputed from the date of asset use and the deficiency or surplus is adjusted, with disclosure.

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