When an Asset's Estimated Useful Life and Residual Value Turn

question 30

Multiple Choice

When an asset's estimated useful life and residual value turn out to be materially incorrect and the asset has not reached the end of its useful life, the correct procedure to follow is:

• A) re-issue corrected financial statements for all prior years.
• B) re-issue corrected financial statements for only the most recent three years.
• C) ignore the problem since estimates are not expected to be exact anyway.
• D) allocate the remaining depreciable amount over the remaining useful life.

---

Definitions:

Production Process

The sequence of operations or activities involved in producing goods or services, from raw materials to finished products.

Machinery

Mechanical devices or equipment required in the manufacturing process or any industry-specific operations.

Operating Leverage

A measure of how revenue growth translates into growth in operating income due to fixed versus variable costs in business operations.