Skip to content

CMA Final · Corporate Financial Reporting · Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)

Vihaan Pharma Ltd had a machine with cost ₹20,00,000, residual value nil and 10-year life, depreciated straight-line. At the start of year 5 (after 4 years of depreciation), it revises the remaining useful life to 4 years (total life 8 years) because of technological changes. What is the depreciation charge for year 5 and how is the change accounted for?

Depreciation for year 5 is ₹3,00,000, being the carrying amount of ₹12,00,000 divided by the 4 remaining years. A revision of useful life is a change in accounting estimate and is applied prospectively, without restating prior years.

  1. A₹2,50,000, applied retrospectively with restatement of earlier years
  2. B₹3,00,000 prospectively, since the carrying amount ₹12,00,000 is spread over 4 remaining yearsCorrect
  3. C₹3,00,000 as a prior period error corrected through opening reserves
  4. D₹2,00,000, as the original rate continues

Explanation

Accumulated depreciation after 4 years = 20,00,000 × 4/10 = ₹8,00,000, so carrying amount = ₹12,00,000. Spread over 4 remaining years gives ₹3,00,000. A change in useful life is a change in estimate, recognised prospectively in the current and future periods. The ₹2,50,000 option wrongly uses total 8 years from cost (20,00,000/8) as if retrospective.

Did you get it right without looking?

One question tells you little. A timed set on Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8) shows your real accuracy, how long you take and where you lose marks.

Practise Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8)Free diagnostic mock

More Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8) questions