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P2-D2.
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maximus07
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These are book lines:
A change in accounting policy occurs if there has been a change in:
(1) recognition, e.g. an expense is now recognised rather than an asset
(2) presentation, e.g. depreciation now included in cost of sales rather than administrative expenses, or
(3) measurement basis, e.g. stating assets at replacement cost rather than historical cost.The first two are understandable to me.
I am confused with (3). How change in measurement basis is change in accounting policy? If we are only changing measurement so it could be change in accounting estimates? Like we used to measure depreciation as per SLM but now we charge depreciation as reducing balance.
P2-D2
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Hi,
Depreciation is an estimate of how to spread the cost over the asset’s life. The cost of an asset is not an estimate and is based on fact. Given this, the change in deprecation is a change in accounting estimate and the change in cost measurement will be a change in policy.
Thanks
maximus07
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