Depreciation Accounting – Change in the Method of Depreciation

Change in the Method of Depreciation 

Sometimes a change in the method of depreciation may be required. For example, a firm may change the method of depreciation from Fixed Instalment Method to Reducing Balance Method or vice versa. In such a case, there can be two different situations:

(i) Change in the method of depreciation may be desired from the current year onwards. In such a case, depreciation will be charged according to the new method from the current year (See Illustrations 13.9 and 13.12).

(ii) Change in the method of depreciation may be desired from a back date. This will require necessary adjustments to be made in the current year for any extra or less depreciation charged in earlier years. Jn such a case, the best course would be to compute the amount of depreciation which has already been charged according to the old method and the amount of depreciation that is to be charged according to the new method. The difference if any should be credited (or debited) to the Asset Account in the current year and should be shown as a separate charge (or income) in the Profit and Loss Account of the current year of the firm. (See Illustrations 13.10 and 13.11).