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Change in the Method of Computing Depreciation

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Change in the Method of Computing Depreciation

Can a company change its method of computing depreciation, say from the reducing balance method to straight line method ? If so, under what circumstances it can do ?

Accounting Standard 6, Depreciation Accounting, issued by the Institute of Chartered Accountants of India in 1982 recommends that whichever method of depreciation is selected, it should be applied consistently from period to period. Such consistency is required to provide comparability of the results of the enterprise. A company can switch over from one method to another only if the adoption of the new method is required by statute or for compliance with an accounting standard or if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements of the enterprise. When such a change in the method of depreciation is made, the unamortised depreciable amount of the asset should be charged to revenue over the remaining useful life by applying the new method. Any change in the basis of providing for depreciation from year to year amounts to a change in the method of accounting and its effect in terms of profits should be disclosed by way of a note on the profit and loss account.

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