ExpertMedium1 markMultiple Choice
ACCA · Question 63 · Recording Transactions: Tangible Assets
Section B - Case 2: Single Entity Accounts
Scenario: AquaHarvest Marine Farms
AquaHarvest prepares its financial statements for the year ended 30 September 20X6.
Issue 2: Depreciation on harvesting equipment needs to be charged at 20% reducing balance.
If AquaHarvest decides next year to change its depreciation method for this equipment from reducing balance to straight-line, how is this change classified under IAS 8?
Section B - Case 2: Single Entity Accounts
Scenario: AquaHarvest Marine Farms
AquaHarvest prepares its financial statements for the year ended 30 September 20X6.
Issue 2: Depreciation on harvesting equipment needs to be charged at 20% reducing balance.
If AquaHarvest decides next year to change its depreciation method for this equipment from reducing balance to straight-line, how is this change classified under IAS 8?
Answer options:
A.
A change in accounting policy.
B.
A change in accounting estimate.
C.
A prior period error.
D.
A non-adjusting event.
How to approach this question
Recall IAS 16 rules. A change in depreciation method, useful life, or residual value is always treated as a change in accounting estimate, applied prospectively.
Full Answer
B.A change in accounting estimate.✓ Correct
According to IAS 16 Property, Plant and Equipment, a change in the depreciation method is a change in the estimated pattern of consumption of the future economic benefits embodied in the asset. Therefore, it is accounted for as a change in an accounting estimate under IAS 8, applied prospectively.
Common mistakes
Classifying it as a change in accounting policy, which would require retrospective application.
Practice the full ACCA FA — Financial Accounting Practice Exam 5
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