 In this discussion, we will discuss the discussion question of describe the process for changes in depreciation estimates. So if we see an essay question like this, we first probably want to talk a little bit about what depreciation is, what it's related to, and then what estimates are, and then what happens if there's a change to an estimate. So when considering depreciation, we're talking about something applied to property, plant, and equipment. Property, plants, and equipment being an asset that we're going to put on the books that will be an asset on the books rather than an expense due to the fact that one, it's going to be a tangible asset typically, something we can touch and feel, something that will have a useful life that will be over generally over one year, meaning we are going to be using this asset in order to generate revenue in the future, and therefore putting it on the books as an asset rather than expensing it at the time of purchase. So once we have that, then we need to discuss, okay, well now we have estimates, where does that come into play? Well, when we put the asset on the books, we're going to have to make some type of estimate in terms of how it's going to decline in value, or in other words, how we're going to allocate the cost of the property, plants, and equipment to its useful life. Those estimates typically being depreciation calculations, such as the straight line method or an accelerated method, such as double declining balance. And so then the question is, well, what if there's a change in estimate? What does that mean? Well, that's going to mean that if we already made the estimate in year one, and it's going to be like a five-year property, and then at some point in the future, we may find that our estimate is wrong. We may find in year three, we may find that it's totally obsolete at this point, or we may find in year three that this extended life, it's going to be a lot longer than five years. We're going to use it for more than five years. So the things that can change in our estimate, typically it's not going to be the cost, it's not going to change. That's not the estimating part of our calculation. The cost is what it is, what we pay for. What could change is going to be the estimated life of the equipment. Could change over time. We might say, after a few years, we might say our estimate on how long this thing is going to last, we weigh off, and we should change that, or the salvage value, how much we think it's going to be worth at the end if it's useful life. One or both of those could change significantly changing our estimate. What are we going to do if that happens? What we don't do usually is we don't go back in time and try to recalculate based on the original cost, and so for example, if we found a change in year three, we typically don't go back to years one and two, and make that change retroactively. Why won't we do that? Because if we go back, we've already recorded the expense, which is a timing account, and that's been closed out to retained earnings or the capital account, and therefore, if we went back in time, we'd have to reclose the process. It might not be worth our time to go back and restate the financial statements from the past in accordance with this new changing estimate we have. It may be easier, it may be best for us to say, okay, we were off in our estimate before, we have changed our estimate now, which we think is more accurate, and therefore we're going to take this point in time and go forward with the new changing estimate. In other words, if we're starting in year three, we're going to take the book value, the cost minus the accumulated depreciation in year three, and then calculate how much we think, how to allocate that cost over the remaining useful life, which would be a similar calculation as if we were taking the normal depreciation calculation, meaning we would take the book value if it was a straight line, subtract out the salvage, and then divide by the remaining useful life, and that would then take whatever we have left, whatever we haven't yet depreciated, what's still on the books, and depreciate it over its useful life, resulting in the salvage value that we think is appropriate at the point in time of estimate.