Use
the information in BE21-1, but assume instead that the change to the
straight-line method was made because straight-line better represents the
pattern of benefits provided by the capital assets. Prepare Mann’s 2011 journal
entry, if any, to record the change in estimate.
In
BE Mann Corporation decided at the beginning of 2011 to change from the capital
cost allowance (CCA) method of depreciating its capital assets (a
declining-balance method that is a non-GAAP method because CCA does not remove
the asset's carrying amount on disposition) to straight-line depreciation
because the straight-line method will result in more relevant financial
information and is a GAAP compliant method. The company will continue to use
the capital cost allowance method for tax purposes. For years prior to 2011,
total depreciation expense under the two methods is as follows: capital cost
allowance, $117,000; and straight-line, $76,000. The tax rate is 30%. Mann
follows accounting standards for private enterprises (ASPE). Prepare Mann’s
2011 journal entry to record the accounting change.
No entry is required to record the change in estimate. In CICA Handbook, Part II, Section 1506, a
revision of depreciation policy due to changes in the expected pattern of
benefits is identified as a change in estimate. Since the change was made at
the beginning of the year, the new accounting policy would be applied to 2011
and prospective years.
This solution is technically correct, but expect some
debate as it still represents the adoption of a GAAP compliant approach for the
first time – and thus (although a change in estimate) is also the correction of
an error. There would be no debate on this matter if the change were from a
GAAP compliant declining balance approach.
