Question

When a company decides to switch from the double-declining balance method to the straight-line method, this change should be handled as a

a. change in accounting principle.
b. change in accounting estimate.
c. prior period adjustment.
d. correction of an error.

Answer 1

Switching from the double-declining balance method to the straight-line method is accounted for as a change in accounting estimate, reflecting a reassessment of an asset's benefits and useful life.

Step-by-step explanation:

When a company decides to switch from the double-declining balance method to the straight-line method, this change is handled as a change in accounting estimate. Accounting principles allow for such changes when a company determines that the alternative method provides a more reliable and appropriate presentation of the financial statements. This switch does not involve correcting any errors or revisiting prior periods; instead, it reflects a change in the estimation of the pattern of economic benefits and the useful life of the asset.