What is Change in accounting estimate?
In short
A change in accounting estimate is a revision of an amount, such as an asset's useful life or a warranty accrual, because of new information. It is applied prospectively, in the current and future periods only.
Key takeaways
- Prior periods are not restated.
- A change in depreciation method is treated as a change in estimate effected by a change in principle, also prospectively.
- Correcting a mistake in an earlier estimate's arithmetic is an error correction, not a change in estimate.
Where it's tested
FAR: Accounting Changes & Error Corrections — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A company changes from the FIFO inventory method to the weighted-average method. How is this reported?