- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 26. Long-lived Assets
- Subject 3. Depreciation Methods
CFA Practice Question
There are 520 practice questions for this study session.
CFA Practice Question
Which statement is not true concerning changes in depreciation method?
A. A company can change its depreciation method only for newly acquired assets and must continue to depreciate previously acquired similar assets using the same method as it has in the past.
B. When a new method of depreciation is applied retroactively, companies must disclose the pro forma impact of the new method on prior periods. The cumulative effect of the change must be reported separately and net of taxes.
C. Changes in salvage values are considered changes in accounting principle.
Explanation: Changes in salvage values and asset lives are changes in accounting estimates and are not considered changes in accounting principle.
User Contributed Comments 9
|humphrey||what about A? is it contradictory with B?|
|gjwhite||See page 391 in White, Sondhi and Fried: A firm may change reported depreciation in 3 ways: 1) change method for all assets 2) for only newly aquired assets 3) change asset lives or salvage values (not considered a change in accounting principle)|
|turtle||Isn't A also false?|
|mm05||I think A is also wrong because you can change the method for old assets too.|
|hkcfa2||A is correct: you can use a different dep method for newly acquired assets, but you cannot change the method for old assets.|
|armanaziz||The use of words "Can" and "only" in option A is confusing - it may be interpreted in 2 ways.|
|dan1987||If (A) stated "A company can change its depreciation method only for newly acquired assets" then it would be incorrect
However since it has "and continue to depreciate previously acquired similar assets using the same method as in the past." this makes the statement true
A company can choose to either depreciate new assets at in the same method as before, or can use a different method to previously used, or can change the method used for old and new assets.
|farhan92||I chose A but in hindsight "change in Accounting principle" based on salvage value sounds a bit far fetched.|