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Research a company that had a change in accounting principles within the past five (5) years. (No earlier than 2012) Discuss the accounting principles that the identified company changed, and explain the major reasons why the company changed accounting principles. Give your opinion on whether you believe the change in accounting principles was to benefit the corporation or investors and creditors. Provide a rationale for your response.
Expert Answer
Solution:
The Honda Motor Corp Ltd. has changed their depreciation method from declining balance method to straight line method ( Plant & equipment ) for the year ended 31 March 2013 ( Source: Annual report of Honda Motor Corp Ltd.). Both are the popular methods of charging depreciation to the assets with little difference. Selection of method simply depends on the nature and usage of the asset.
> Straight line Method: This method is more relevant to the assets whose usage will remain constant during the relevant financial year like Building.
>Declining balance method: This method is applicable in case the usage of the asset will vary during the relevant financial years like Plant and machinery, the usage will vary on the basis of the level of output on the basis of demand in the market.
Reason to change the method: Under declining balance method, the depreciation cost is lower in the initial years of the assets and the same will be higher in the later years. In order to reduce depreciation cost, the method was changed because the company wants to enhance its production capacity and versatility in plant and equipment. The annual report stated that the depreciation expenses were reduced by ¥56,300 million for the year ended 31st March 2013.
