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CMA Intermediate · Financial Accounting · Property, Plant and Equipment (AS 10)

Sagar Textiles Ltd revised the estimated useful life of its machinery during the year, and the revision changes depreciation for the current year and for later years. As per AS 10, what must the company do?

The company must disclose the nature and effect of the change in the useful life estimate. AS 10, read with AS 5, requires this when a change in an estimate such as useful life affects the current period or is expected to affect subsequent periods.

  1. ADisclose the nature and effect of the change in accounting estimate, as it affects the current and subsequent periodsCorrect
  2. BRestate the depreciation of all prior years and adjust opening reserves
  3. CMake no disclosure, because useful life is always an internal matter
  4. DDisclose it only if the change reduces profit for the current year

Explanation

AS 10 requires, in accordance with AS 5, disclosure of the nature and effect of a change in an accounting estimate that affects the current period or is expected to affect later periods. Useful life is one of the listed estimates. Prior-year restatement is not required, so restating earlier years is wrong.

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