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CSEET · Fundamentals of Accounting · Depreciation and Amortization

Sharma Traders reviews its depreciation method at year-end and finds that the expected pattern of consumption of the economic benefits of a machine has significantly changed. As per AS 10, how should the change in method be accounted for?

The change is treated as a change in an accounting estimate under AS 5. When the expected pattern of consumption of benefits changes significantly, the method is changed to match it, and the effect is dealt with prospectively rather than by restating earlier years.

  1. AAs a change in an accounting estimate in accordance with AS 5Correct
  2. BAs a prior period item, restating all earlier years' profits
  3. CAs a change in accounting policy requiring full retrospective adjustment
  4. DAs an extraordinary item shown separately in the balance sheet

Explanation

AS 10 requires the method to be changed to reflect the changed pattern, and the change is accounted for as a change in an accounting estimate under AS 5. It is therefore applied prospectively and not through restating prior years. The policy-change option is wrong because the standard expressly calls it an estimate change.

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