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a change from straight line to reducing balance is a change in accounting estimate
a change from AVCO to FIFO is a change in accounting policy.
like straight line, AVCO/FIFO are just methods of meaurments so why r these different?
This is a tricky one!
There’s a subtle difference here between a change in accounting estimate and a change in policy.
The accounting estimate depreciation is exactly what it says – it’s an estimate. It estimates the rate of depreciation of an asset’s value over its estimated useful life. It’s not capable of precise determination.
On the other hand the value of stock IS determinable but there are a variety of ways in which that determination can be reached – FIFO, LIFO, Base, WAVCO, AVCO, ACTUAL ….
Clearly we would arrive at different values of inventory with all of these so the method adopted for valuing inventory – the policy – is selected by the directors and then stuck to rigidly and any change is a change in policy
A change in estimated depreciation, estimated useful life, estimated profile of use of the asset – these are estimates and a change from straight line to reducing balance is a change in estimate
But it’s a fine line that divides the two!
thanks…. i will remember this by heart and give easier examples in the exam..:)
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