Question

Which of the following statements regarding revision of depreciation rates are correct?

I. Beginning balances for the asset and its accumulated depreciation account are not adjusted when a change in estimate occurs.
II. Changes in estimate should be handled in the current period only.
III. No "catch-up" entry is made at the time a revision of depreciation rates occurs.
IV. Depreciation expense is revised by dividing the remaining book value less any salvage value by the remaining estimated life.
A. II, III, and IV.
B. I, II, and IV.
C. I, II, and III.
D. I, III, and IV

Answer 1

The correct statements regarding revision of depreciation rates are that beginning balances are not adjusted, no catch-up entry is made, and future depreciation expense is revised based on remaining value and life.

Step-by-step explanation:

The question pertains to the accounting treatment when there is a change in the estimation of the depreciation rates of an asset. According to generally accepted accounting principles (GAAP), the correct statements regarding revision of depreciation rates are:

• I. Beginning balances for the asset and its accumulated depreciation account are not adjusted when a change in estimate occurs.
• III. No "catch-up" entry is made at the time a revision of depreciation rates occurs.
• IV. Depreciation expense is revised by dividing the remaining book value less any salvage value by the remaining estimated life.

This means that when there is a revision in the depreciation rate due to a change in estimate, prior financial statements are not restated. The change is accounted for prospectively. Hence, you would adjust the future depreciation expense to allocate the remaining book value of the asset (less any salvage value) over its revised remaining useful life.