A change in the residual value of a depreciable asset is treated as a change in accounting:

• A. principle
• B. policy
• C. estimate
• D. error

Answer: (C)

Verified step by step guidance

1. Understand the concept of residual value: Residual value is the estimated amount that an entity expects to receive from the disposal of an asset at the end of its useful life, minus any disposal costs.
2. Recognize the nature of the change: A change in the residual value of a depreciable asset is considered a change in accounting estimate, not a change in accounting principle or policy. This is because estimates are based on future expectations, which can vary over time.
3. Review the accounting treatment for changes in estimates: According to accounting standards, changes in accounting estimates are applied prospectively. This means the change affects the current and future periods, but does not require adjustments to prior periods.
4. Determine the impact on depreciation: When the residual value changes, the depreciation expense for the remaining useful life of the asset must be recalculated. Use the formula for straight-line depreciation: $D=\frac{C-R}{U}$, where D is depreciation expense, C is the cost of the asset, R is the residual value, and U is the remaining useful life.
5. Update the financial statements: Adjust the depreciation expense in the current and future periods based on the revised residual value. Ensure proper disclosure of the change in accounting estimate in the notes to the financial statements.