Question

Identify the accounting and ethical issues involved when changing assets useful lives.

Answer 1

company will have no longer the depreciation expense on that equipment when an asset has reached the end of the useful life. The problem is that the changing the useful lives of the assets solely to inflate earnings then this practice is dishonest. It is dishonest because the company would have to pay the depreciation expense. Doing this only for that reason and no other reason is unethical and the earnings that are inflated would be artificial because the depreciation expense would technically still be an expense. If the change is intentional then it is considered as unethical.

When a change in the useful life estimate occurs, there is no need to make a journal entry. New depreciation rate is recorded at the end of the accounting period.