How do I account for a change in depreciation policy?

How do I account for a change in depreciation policy?

A question that I often get asked is: how are changes in depreciation policy accounted for? 

The follow up question usually asked is whether such changes are accounted for prospectively or retrospectively under FRS 102? 

The answer, however, depends on whether the change is a change in ‘estimate’ or a change in accounting ‘policy’.

Change in accounting estimate

Whilst commonly referred to as a ‘depreciation policy’, the depreciation method used is actually an accounting estimate (as detailed in FRS 102 paragraph 17.23). 

For example, an entity changing from the reducing balance method to a straight line basis of depreciation, should account for this as a change in accounting estimate, in line with FRS 102 paragraph 10.16, by applying the change prospectively from the date of the change.

Both the useful life and residual value of an asset are accounting estimates. These estimates should be reviewed and updated, where necessary, in accordance with FRS 102 paragraph 17.19. Any amendments to either useful life or residual value are also applied prospectively from the date of change.

Change of accounting policy

When an entity decides to change where a depreciation charge is presented in the accounts, for example, changing its classification from cost of sales to administrative expenses, this would be deemed to be a change of accounting policy (unless, for example, there is a change in circumstance e.g. because of a change in production methods, meaning that the asset is now being used in a different way – in which case the change in presentation would be actioned prospectively from the date of change). 

Under FRS 102 paragraph 10.8, this change must result in the financial statements providing reliable and more relevant information about the effects of transactions on the entity’s financial position or performance. When this criteria is met, entities should account for this change in accounting policy retrospectively and therefore the relevant depreciation charge for the prior period should also be reclassified.

If ever in doubt about the applicable rule in the case of your technical question please e-mail us at and we will let you know if there is a charge for your technical question and how long it will take us to generate a reply. Usually technical questions are answered in 48 hours.

For more in technical accounting topics see our online webinars accessible for up to one year from date of purchase. There are 20 topics available and more are added all the time. 

Topics include Investment Property Accounting, FRS 105, Common Errors in FRS 102 Accounting and the latest on FRS 105 and company law, visit our online webinar training website. Once viewing is completed, customers will receive a CPD Certificate confirming their learning.

See also our on-demand webinars on AML, accessible at any time and the new requirement for the AML Business Risk Assessment.

Common Errors in FRS 102 Accounting

Common Errors in FRS 102 Accounting

Revaluation gains on tangible fixed assets go through the Profit & Loss Account. True or False? The answer is ‘False’.

To find out where revaluation gains on tangible fixed assets are presented, see our webinar called ‘Common Errors in FRS 102 Accounting’ where you may download the slides and support materials, all for just €45. On successful completion, receive a CPD certificate for your newly acquired knowledge. Well done!

The webinar, is 51 minutes long, and may be viewed anytime for up to a year from date of purchase, covers the following key areas, among others:

  • Directors’ loans – the new rules on amortisation since 1 January 2019;
  • Investment property revaluations;
  • Statement of Changes in Equity (SoCE);
  • Tangible fixed assets revaluations;
  • Depreciation not charged;
  • Going concern and break-up;
  • Deferred tax gone missing;
  • Areas of judgement and estimation uncertainty;
  • Turnover accounting policy;
  • Stocks/inventory accounting policy; and
  • Disclosing the functional currency.

There are 18 other webinars on various topics – also for €45 each, or you may purchase two at the same time for €80 or five for €190.

All our webinars are accessible at any time (for 12 months from date of purchase) here.

We have also prepared, ready to use, several engagement and representation letter templates (in Word format) for many types of assignment, which help reduce misunderstandings about engagement scope and liability. These are available to purchase online (bulk purchases of 5 or more templates attract a 20% discount), please click on the relevant links.

Our latest additions may be of interest to you: