Skip to content

CMA Foundation · Fundamentals of Financial and Cost Accounting · Depreciation (Straight Line and Diminishing Balance Methods)

Under AS 6, a change in the method of depreciation is treated as a change in accounting policy. If the new method is adopted, which of the following is required?

When the depreciation method changes, depreciation is recomputed from the date the asset came into use under the new method. The resulting deficiency or surplus compared with depreciation already charged is adjusted in the year of change, and the change is disclosed as a change in accounting policy.

  1. ADepreciation is recalculated from the date of asset use under the new method, and any shortfall or surplus is adjusted in the year of changeCorrect
  2. BThe change is applied prospectively only, with no adjustment for earlier years
  3. CPrevious years' financial statements are reissued and published again
  4. DThe change is ignored for the books and used only for tax purposes

Explanation

AS 6 requires retrospective recomputation: depreciation is calculated from the date the asset was first used under the new method. The deficiency or excess over what was charged earlier is adjusted in the year of change and disclosed. A purely prospective treatment is not what AS 6 prescribes for a method change.

Did you get it right without looking?

One question tells you little. A timed set on Depreciation (Straight Line and Diminishing Balance Methods) shows your real accuracy, how long you take and where you lose marks.

Practise Depreciation (Straight Line and Diminishing Balance Methods)Free diagnostic mock

More Depreciation (Straight Line and Diminishing Balance Methods) questions