ACCA Applied Knowledge · Financial Accounting · Depreciation
Which of the following is a required treatment under IAS 16 when the estimated useful life of an existing asset is revised?
A revised useful life is a change in accounting estimate and is applied prospectively. The remaining carrying amount, less residual value, is depreciated over the new remaining life, with no restatement of prior periods or immediate catch-up charge.
- ARestate prior-period depreciation and adjust opening retained earnings
- BApply the new estimate prospectively over the remaining useful lifeCorrect
- CCharge the whole difference immediately to profit or loss
- DLeave depreciation unchanged until the asset is disposed of
Explanation
A change in useful life is a change in accounting estimate, not an error or policy change. Under IAS 16 it is applied prospectively: the carrying amount less residual value is spread over the revised remaining life. Restating prior years would apply only to errors.
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