If a company changes the useful life of its assets from 10 years to 12 years, this will be recorded as ________.
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A. B. C. D.D
The depreciation schedule for each asset affected is simply recalculated for the remainder of the life.
The correct answer to the question is D. none of these answers.
When a company changes the useful life of its assets, it does not result in any of the options provided in the answers.
Let's go through each answer choice and explain why it does not apply to this situation:
A. A non-recurring gain: A non-recurring gain refers to an unusual or infrequent gain that is not expected to occur regularly in the future. Changing the useful life of assets does not generate any immediate or one-time gains, so this answer is incorrect.
B. A change in accounting principle: A change in accounting principle occurs when a company adopts a new accounting principle or changes its existing accounting policy. However, changing the useful life of assets is not a change in accounting principle; it is a change in the estimate used for depreciation or amortization, which is an accounting estimate, not a change in underlying accounting principle.
C. An extraordinary item: Extraordinary items are events or transactions that are both unusual in nature and infrequent in occurrence. Changing the useful life of assets is a regular and ongoing occurrence for companies as they reassess and update their depreciation schedules. Therefore, this answer is incorrect.
D. None of these answers: This is the correct answer. Changing the useful life of assets is not classified as a non-recurring gain, a change in accounting principle, or an extraordinary item. It is simply a change in estimate for calculating depreciation or amortization expenses.
In summary, when a company changes the useful life of its assets from 10 years to 12 years, it is not recorded as a non-recurring gain, a change in accounting principle, or an extraordinary item. The change represents an adjustment in the estimate used for depreciation or amortization, which is a regular and ongoing process for companies.