a. Two depreciation methods available for companies to use (AASB 116/IAS 16) are:

i. Straight-line method: This method allocates the same amount of depreciation expense each year, which is calculated by dividing the cost of the asset less its estimated residual value by its useful life. The advantages of this method are that it is simple, easy to understand, and provides a constant charge to income. However, the disadvantage of this method is that it does not reflect the actual usage of the asset, and it may not provide accurate information about the asset’s performance over its life.

ii. Accelerated method: This method allows for higher depreciation expenses in the early years of the asset’s life and lower expenses in later years. This is because the depreciation expense is calculated based on a higher rate applied to the asset’s book value, which reduces as the asset ages. The advantages of this method are that it provides a better reflection of the asset’s usage and performance, and it may result in higher tax savings in the earlier years of the asset’s life. However, the disadvantage of this method is that it is more complicated and may be more difficult to understand.

b. According to AASB 108/IAS 8, if a company changes its depreciation method, it must disclose the following information in the financial statements:

i. The nature of the change in the accounting estimate ii. The reasons for making the change iii. The amount of the adjustment for the prior period presented, disaggregated by the financial statement line item affected iv. The impact of the change on the current period’s profit or loss, and any other affected financial statement line item v. If applicable, the amount of the adjustment relating to any period before those presented vi. A description of the transitional provisions, if any, and their effect

These disclosures help users of the financial statements to understand the impact of the change in depreciation method on the financial performance and position of the company. It is important to note that any adjustment for prior periods should be recognized in the opening balance of retained earnings for the earliest period presented.

References:

Australian Accounting Standards Board. (2015). AASB 116 Property, Plant and Equipment. Retrieved from https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPoct14_01-14.pdf

International Accounting Standards Board. (2017). IAS 16 Property, Plant and Equipment. Retrieved from https://www.iasplus.com/en/standards/ias/ias16