Question

The Peridot Company purchased machinery on January 2, 2019, for $980,000. A five-year life was estimated and no residual value was anticipated. Peridot decided to use the straight-line depreciation method and recorded $196,000 in depreciation in 2019 and 2020. Early in 2021, the company revised the total estimated life of the machinery to eight years.

Required:
1. What type of change is this?
2. Is Peridot required to revise prior years’ financial statements as a result of the change?
3. Is Peridot required to provide a disclosure note to report the change?
4. Determine depreciation for 2021.

Answer 1

1. The given case is change in accounting estimate.

2. For change in accounting estimate, we need to reflect in the present and prospective financial statements. Hence what is retrospective will not be tampered or harmed. Thus no revision to prior year's financial statement is required.

3. Yes. As per the standard IAS 8, Peridot is require to disclose the reasons as whu there was a change in the accounting estimate.

4.

Computation of Depreciation ($)

Original Cost	980,000
Less: Depreciation for 2019 and 2020 (196,000×2)	(392,000)
Written Down Value	588,000
Remaining useful life (Note)	6
So, Depreciation for 2021	588000/6 = 98,000

Note: of the total useful life of 8 years, 2 years elapsed. Thus balance remaining life is 6.