[palal9923]

Can somebody help me understand what this means?

I understand if we switch to LIFO

Or we have a change in deprc/depletion/amortz it is considered an accounting change in estimate related to inseperable costs, but why?

I think I saw an example where it was a change to LIFO yet the correct answer was that it was a change in principle not “inseparable cost” concept

[jbeans2009]

Amortization/Depreciation is based on estimation of amount of years, and value at the end of service. Therefore, switching methods of depreciation would be a change that is part of the inseparable from estimate concept. However, inventory valuation does not rely on estimate, but rather on cost. Therefore, changing inventory valuation method would not fall under the category of a change that's inseparable from estimate.

[smcilw1]

Changes in depreciation method and TO LIFO are both exceptions to the general rule of a change in accounting principle.

A change in depreciation method is an accounting change “inseparable from a change in estimate” because regardless of which depreciation method you use, you will always eventually depreciate the asset down to 0 or it's salvage value. While you're changing the “principle,” it is only a temporary difference because you will always come to the same result, therefore it is just a estimate difference.

TO LIFO is not inseparable from a change in estimate because inventory valuation will result in different amounts over time. It is still a change in principle, yet handled as a change in estimate because it is “impracticable to estimate” the older LIFO cost layers. Due to the impracticability of reestablishing and recalculating all of the old layers, we handle it prospectively.

So both a change in depreciation and a change TO LIFO are handled the same way, however one is “inseparable from a change in estimate” and one is “impracticable to estimate.” Hope that helps!

FAR - 87 (7/14/11)
AUD - 94 (8/31/11)
REG - 92 (10/19/11)
BEC - 88 (11/30/11)

[Author]

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