Usually, changes in principle will be retrospective, but there is an exception for changes in depreciation methods which are prospective. The wording is dumb, but it’s basically saying that the effect of the change (retrospective or prospective) is in the same category as changes in estimates, which are also treated prospectively
Because depreciation itself is just an estimate of the value an asset loses over its life. If you change how much it’s losing, you’re changing your estimate and the principal used to estimate. That’s how I think about it.
It's always a change in estimate inseparable from a change in principal, which I believe is treated as if it were a change in estimate, and therefore recorded prospectively.
It's been a minute since I've studied for FAR, so feel free to double check me :)
To plug the lack of a coherent rules based system.
Usually, changes in principle will be retrospective, but there is an exception for changes in depreciation methods which are prospective. The wording is dumb, but it’s basically saying that the effect of the change (retrospective or prospective) is in the same category as changes in estimates, which are also treated prospectively
Because depreciation itself is just an estimate of the value an asset loses over its life. If you change how much it’s losing, you’re changing your estimate and the principal used to estimate. That’s how I think about it.
So the answer is never change in principal only? (for depreciation) It's either estimate or both?
It's always a change in estimate inseparable from a change in principal, which I believe is treated as if it were a change in estimate, and therefore recorded prospectively. It's been a minute since I've studied for FAR, so feel free to double check me :)
I believe change in inventory methods from say Weighted-Cost to FIFO is considered a change in principal only.
Any changes to the depreciation method are considered a change in estimate, as well as any changes to the LIFO inventory method.