A Change in the Estimated Useful Life and Residual Value

question 61

Multiple Choice

A change in the estimated useful life and residual value of machinery in the current year is handled as:

• A)A retrospective change back to the date of acquisition as though the current estimated life and residual value had been used all along.
• B)A prospective change from the current year through the remainder of its useful life, using the new estimates.
• C)A cumulative adjustment to income in the current year for the difference in depreciation under the new versus old estimates.
• D)None of the above is correct.

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Definitions:

Industry Classification

A system for categorizing companies and stocks based on their primary business activities.

Du Pont Identity

A financial analysis formula that breaks down return on equity into three components: profit margin, asset turnover, and financial leverage.

Operating Efficiency

A measure of the effectiveness and productivity with which a business or organization operates, often relating to how well it utilizes its resources.

Asset Use Efficiency

How effectively a company utilizes its assets to generate revenue.