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      Question

      A manufacturing company acquired a specialized machine

      for ₹10,00,000 with an original estimated useful life of 10 years and zero residual value. After exactly 3 years of using the Straight-Line Method (SLM) of depreciation, the technical team determines that due to superior maintenance, the machine's total useful life should be 12 years from the date of acquisition. As per accounting standards, how should this be handled?
      A It is a change in Accounting Policy and must be applied retrospectively, restating the depreciation for the past 3 years. Correct Answer Incorrect Answer
      B It is a Prior Period Error and the opening balance of Retained Earnings must be adjusted to reflect the lower depreciation. Correct Answer Incorrect Answer
      C It is a change in Accounting Estimate and the carrying amount at the end of Year 3 should be depreciated over the remaining 9 years. Correct Answer Incorrect Answer
      D It is a change in Accounting Estimate and the carrying amount at the end of Year 3 should be depreciated over the remaining 12 years. Correct Answer Incorrect Answer
      E The change should be ignored until the end of the original 10-year term to maintain consistency in financial reporting. Correct Answer Incorrect Answer

      Solution

      Revisions in useful life, residual value, or the expected pattern of consumption of future economic benefits are classified as  Changes in Accounting Estimates , not policies or errors. Under  Ind AS 8 , changes in estimates are always handled  prospectively . This means the company does not fix the past but only adjust the current and future periods. The future depreciation calculation will be done as follows:

      • Cost: ₹10,00,000
      • Depreciation for 3 years already applied as per SLM: (10,00,000÷10)×3=3,00,000
      • Carrying Amount at end of Yr 3: 10,00,000−3,00,000=7,00,000
      • New Total Life: 12 years
      • Remaining Life 12 (New Total) − 3 (Years Lapsed) = 𝟗 Years
      •   Future Impact: For Year 4 onwards, the annual depreciation will be 7,00,000÷9 = 77,778 (instead of 1 lakh earlier)

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