Multiple choice

When the policy of charging depreciation is changed, which of the following statements will apply?

  1. The difference of depreciation as per new and old policy is adjusted in the year of change.

  2. The difference of depreciation is treated as deferred revenue expenditure.

  3. The difference is adjusted in the previous year's accounts.

  4. No difference of depreciation is adjusted
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A Correct answer
Explanation

When changing depreciation policy, accounting standards (AS-10) require that the difference arising from the change be adjusted in the year of change itself. This catches the cumulative effect of using different rates/methods immediately, rather than deferring it or restating prior years. The adjustment is made to the asset account and reflected in the current year's P&L, ensuring the impact is transparent and timely.

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