Bailey
Corp. changed depreciation methods in 2011 from straight-line to
double-declining-balance because management argued that the change would
improve the relevance of the information to financial statement readers. The
assets involved were acquired early in 2008 for $185,000 and had an estimated
useful life of eight years, with no residual value. The 2011 income using the
double-declining-balance method was $490,000. Bailey had 10,000 common shares
outstanding all year. What is the effect of the accounting change on the
reported income and EPS for 2011? Bailey follows IFRS. Ignore income taxes.
There would be no further change in reported income
and EPS for 2011 since the 2011 net income has already been calculated using
the new depreciation method. There would be no adjustment to opening retained earnings for any previous year since changes
considered changes in estimate are accounted for prospectively. There would
also be no journal entry to adjust the accounting records for accumulated depreciation
due to the change in method since a change from one depreciation method to
another is considered a change in estimate, not a change in accounting policy.
