Companies in the industry use declining-balance method

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Reference no: EM131203832

Your company has recently decided to change its method of depreciating long-term assets to be consistent with major competitors. Your company has always used the straight-line method while most other companies in the industry use a declining-balance method. Preliminary computations indicate that changing this accounting principle will reduce Earnings per Share by about 10% in the current year. Naturally, those to whom you report would like to know if there is any way to lessen the impact of this change. You know that other factors in computing depreciation expense are the estimates of useful life and salvage value. You reason that if the estimated useful life of long-term assets is reassessed with minor modifications to the estimated lives, then switching the depreciation method will not decrease net income this period. 1. Can the plan of reassessing the estimated lives of long-term assets achieve the desired result of allowing the company to change depreciation accounting methods to a declining-balance method without reducing net income this period? 2. Will the company have a higher cash inflow as a result of either the change in principle or the change in estimate? 3.Should the level of a company’s income determine the accounting.

Reference no: EM131203832

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