Practice Activity 3.5 The consistency convention

The facts are the same as practice activities 3.3 and 3.4.

Required: Discuss your answers in Practice Activities 3.3 and 3.4, respectively, in the context of consistency convention.

A suggested answer to practice activity 3.5

If Amiable Enterprises uses the straight-line method when estimating depreciation expense, the business should continue using the same method in future periods. However, if Amiable Enterprises changes the way depreciation is estimated to the reducing-balance method, it should disclose the influence of this decision in the financial statements. This is because the straight-line method results in a profit of ₦11,143 for the year ending 31 July 2019, compared to the reducing balance method which results in a loss of ₦500 for the same accounting period.