When a Company Acquires an Asset That Will Provide Benefits

Essay

When a company acquires an asset that will provide benefits for several years,the cost of the asset is allocated over the asset's useful life.The allocation process is operationalized through the choice of one of the generally accepted depreciation methods.In choosing a depreciation method to apply,company management is required to make several estimates as part of this allocation process such as the following:
1.Over what period of time will benefits from using the asset accrue?
2.What will be the value of the asset when its use is discontinued?
3.Will the benefits be realized evenly of the life of the asset or will they be higher in some years than in others?
Required:
1.What factors should management consider in making a change in depreciation methods?
2.Explain how a change in depreciation methods is reported in the financial statements and why the Financial Accounting Standards Board chose this approach.