If a Company Finds Out Years Later That the Expected

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The Answer is If a company discovers that the expected pattern of consumption of future economic benefits of an asset has changed from its initial estimates, it must adjust the accounting for that asset accordingly. This situation typically arises in the context of depreciation or amortization of long-lived assets.

Here's how a company should deal with this accounting issue:

1. **Review and Revise Estimates**: The company should review the remaining useful life, salvage value, and the pattern in which the asset's economic benefits are expected to be consumed. This review should be based on the most current information available.

2. **Change in Accounting Estimate**: A change in the expected pattern of consumption of an asset is considered a change in accounting estimate. According to accounting standards such as International Accounting Standard (IAS) 16 for property, plant, and equipment, or IAS 38 for intangible assets, changes in accounting estimates are accounted for prospectively.

3. **Prospective Adjustment**: The company should adjust the depreciation or amortization expense prospectively over the asset's remaining useful life. This means that the company does not need to make any adjustments to the financial statements for prior periods. Instead, the depreciation or amortization expense is recalculated from the date of the change in estimate going forward.

4. **Disclosure**: The company should disclose the nature and effect of a change in an accounting estimate in the notes to the financial statements. This disclosure should include the reason for the change and, if possible, the effect on the current and future periods.

5. **Financial Statement Impact**: The impact of the change will be reflected in the income statement through a change in the depreciation or amortization expense. This could potentially affect the company's net income and earnings per share. The carrying amount of the asset on the balance sheet will also be adjusted accordingly.

6. **Tax Implications**: The company should also consider the tax implications of changing the depreciation or amortization method, as this may affect the timing of tax deductions.

7. **Internal Controls and Policies**: The company should review and update its internal controls and accounting policies to ensure that they reflect the new estimates and that similar assets are reviewed regularly for changes in consumption patterns.

It's important to note that the specific requirements for accounting for a change in the pattern of consumption of an asset's benefits can vary depending on the accounting framework being used, such as Generally Accepted Accounting Principles (GAAP) in the United States, International Financial Reporting Standards (IFRS), or other local standards. Companies should consult the relevant accounting standards and possibly seek advice from accounting professionals to ensure compliance.

If a Company Finds Out Years Later That the Expected

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