Asked by Chance Walker on Jun 28, 2024
Verified
Bailey Limited has discovered that the estimated useful life for a material depreciable asset is incorrect due to a change in the way the asset is being used. The correct accounting treatment for this event is to:
A) treat it as an error and adjust retrospectively.
B) disclose the change in the notes to the financial statements.
C) treat it as a change in an accounting estimate and adjust prospectively.
D) treat it as a change in an accounting estimate and adjust retrospectively.
Depreciable Asset
A long-term asset for which the decline in value over time due to use and wear can be allocated over its useful life in a systematic manner.
Retrospectively
A method of application where the rules or standards are applied to actions, transactions, or situations that have occurred in the past.
- Distinguish between changes in accounting estimates and errors, and understand their respective treatment in financial statements.
Verified Answer
FT
Filiana TanotoJul 03, 2024
Final Answer :
C
Explanation :
The correct accounting treatment for a change in the estimated useful life of a depreciable asset due to a change in its usage is to treat it as a change in an accounting estimate and adjust prospectively. This means that the depreciation expense going forward should be based on the new estimate, but the past financial statements should not be restated or revised. The disclosure of this change is required in the notes to the financial statements. Therefore, choice C is the best option.
Learning Objectives
- Distinguish between changes in accounting estimates and errors, and understand their respective treatment in financial statements.