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CA Intermediate · Advanced Accounting · AS 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Which of the following is a change in accounting estimate rather than a change in accounting policy, under AS 5?

Revising a machine's useful life from 10 to 8 years is a change in accounting estimate because it reflects new information about expected benefits. Changes in inventory cost formula, depreciation method or revenue recognition basis are changes in accounting policy.

  1. AChanging the cost formula for inventory from FIFO to weighted average
  2. BChanging the useful life of a machine from 10 years to 8 years based on revised expectations of useCorrect
  3. CChanging the method of depreciation from WDV to SLM
  4. DChanging from the cash basis to the accrual basis for recognising a revenue item

Explanation

A change in useful life results from new information about expected future benefits and is an estimate revision, treated prospectively. The other options change the basis or method of recognition or measurement, which are accounting policies.

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