Question

Using the FASB Codification as a guide, a small computer manufacturing industry you are working for would like to make some adjustments to their straight line depreciation for its manufacturing equipment while in the process of obtaining a bank loan. The company has determined the estimated life of the equipment to be 20 years and the estimated salvage value for this equipment to be higher than the original cost of the equipment. As a new accountant for this company, how would you resolve this situation. Be sure to cite your source, you can use ASC xxx-xx-xx-x. Do not forget to respond to the other topic this week.

Answer 1

Check the following explanation.

Step-by-step explanation:

This will be covered under Accounting principles , Changes and Restatements.

Specifically FAS 154 requires such change to be recognized currently and prospectively.

In this case the effect of change will be carried in current year and future years also as there is change in estimate life of equipment and its salvage value. Company can not mae any change in any past year as there is restriction on making such change. So it will show its prospective effect only.