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Financial Accounting · Intangible non-current assets and amortisation

Amortisation of Intangible Assets for ACCA FA

Updated 11 October 2026 · Fact-checked

Amortisation spreads the cost of an intangible asset with a finite useful life over that life. For straight-line, charge (cost − residual value) ÷ useful life each year. Debit amortisation expense in profit or loss, credit accumulated amortisation. The asset is shown at cost less accumulated amortisation in the statement of financial position.

Understand Amortisation of Intangible Assets

An intangible asset has no physical form. Examples are software, licences, patents and capitalised development costs. You pay for it now, but it helps the business earn income over several years.

The matching idea says the cost should be charged to profit in the years that benefit. Amortisation does this. It is the same idea as depreciation, but the word is used for intangible assets. Depreciation is used for tangible assets such as machinery.

Under IAS 38, an intangible asset with a finite useful life is amortised. You start when the asset is available for use. You stop when it is derecognised or fully amortised. The method should reflect how the benefits are used up. If you cannot determine that pattern, use straight-line.

The residual value of an intangible asset is normally assumed to be zero. There are narrow exceptions, such as a third-party commitment to buy it at the end of its life. Exam questions almost always give zero.

Two figures matter in the accounts. The amortisation charge is an expense in the statement of profit or loss for the year. Accumulated amortisation is the total charged since acquisition. It is deducted from cost to give the carrying amount in the statement of financial position. Goodwill arising on acquisition is not amortised, but it is tested for impairment.

Key formulas to remember

Straight-line amortisation
Annual charge = (Cost − Residual value) ÷ Useful life in years
Residual value is usually zero for intangibles, so this is often Cost ÷ Life.
Part-year charge
Charge = Annual charge × Months in use ÷ 12
Use the policy stated in the question. Amortisation starts when the asset is available for use.
Carrying amount
Carrying amount = Cost − Accumulated amortisation
This is the figure shown in non-current assets.
Amortisation journal
Dr Amortisation expense (profit or loss); Cr Accumulated amortisation
Post this each year. The expense account is closed to profit or loss.
Reducing balance (if specified)
Charge = Opening carrying amount × Rate %
Only use it if the question says so.

How to solve Amortisation of Intangible Assets questions

Use this method for any amortisation question, whether it asks for the charge, the journal or the statement figures.

  1. 1Identify the intangible asset and its cost. Include only costs that qualify to be capitalised.
  2. 2Find the useful life, residual value (normally zero) and the method given.
  3. 3Work out the annual charge. Check whether the asset was acquired part-way through the year.
  4. 4Calculate the charge for the year in question, applying any part-year time apportionment.
  5. 5Work out accumulated amortisation at the reporting date by adding the charges for all years to date.
  6. 6Post the journal: debit amortisation expense, credit accumulated amortisation.
  7. 7Show the charge in profit or loss and cost less accumulated amortisation in the statement of financial position.
  8. 8Re-read the question to confirm you answered what was asked: charge, accumulated amount or carrying amount.

Quickest way: Charge, then accumulate, then subtract

When to use it: Use this for number entry or multiple choice questions where you only need one figure.

  1. Divide cost by life to get the annual charge, ignoring residual value if none is stated.
  2. Multiply by the number of years or months in use up to the reporting date.
  3. This gives accumulated amortisation.
  4. Subtract it from cost for the carrying amount.
  5. Check the answer is not negative and not more than cost.

Common mistakes in Amortisation of Intangible Assets

  • Amortising goodwill arising on acquisition

    Students assume every intangible is amortised.

    Fix: Remember goodwill is not amortised under IFRS. It is tested annually for impairment.

  • Debiting the asset account instead of crediting accumulated amortisation

    Students copy the sign of the original purchase.

    Fix: Amortisation reduces the asset. Credit accumulated amortisation and debit the expense.

  • Showing the cumulative amount as the year's charge

    Accumulated amortisation and the annual charge are confused.

    Fix: The profit or loss figure is only this year's charge. Accumulated amortisation goes to the statement of financial position.

  • Ignoring part-year ownership

    Students use a full year's charge by habit.

    Fix: Check the acquisition date and time-apportion if the question requires it.

  • Deducting a residual value that is not given

    Students copy the depreciation formula without thinking.

    Fix: For intangibles, assume zero residual value unless the question gives one.

  • Capitalising research costs before amortising

    The recognition rules are forgotten.

    Fix: Research is expensed. Only qualifying development costs are capitalised, and amortisation starts when the product is ready for use.

Worked examples

Example 1

On 1 January 20X1, a company bought a software licence for $60,000. It has a useful life of five years and nil residual value. The company's year end is 31 December and it uses straight-line amortisation. Calculate the charge for 20X2 and the carrying amount at 31 December 20X2.

Show the solution
  1. Annual charge = $60,000 ÷ 5 = $12,000.
  2. Charge for 20X2 = $12,000.
  3. Accumulated amortisation at 31 December 20X2 = 2 × $12,000 = $24,000.
  4. Carrying amount = $60,000 − $24,000 = $36,000.

Answer: The 20X2 amortisation charge is $12,000 and the carrying amount at 31 December 20X2 is $36,000.

Example 2

A company acquired a patent on 1 April 20X1 for $90,000. Its useful life is 10 years with nil residual value. The company amortises on a straight-line basis, time-apportioned by month, and has a 31 December year end. Show the profit or loss charge and the statement of financial position figure at 31 December 20X1, and give the journal.

Show the solution
  1. Annual charge = $90,000 ÷ 10 = $9,000.
  2. Months in use in 20X1 = April to December = 9 months.
  3. Charge for 20X1 = $9,000 × 9 ÷ 12 = $6,750.
  4. Accumulated amortisation at 31 December 20X1 = $6,750.
  5. Carrying amount = $90,000 − $6,750 = $83,250.
  6. Journal: Dr Amortisation expense $6,750; Cr Accumulated amortisation $6,750.

Answer: The profit or loss charge is $6,750 and the patent is shown at a carrying amount of $83,250. The journal is Dr Amortisation expense $6,750, Cr Accumulated amortisation $6,750.

Exam tips

  • Read the question for the exact figure required. The charge, accumulated amortisation and carrying amount are all different numbers and are all offered as distractors.
  • Check the acquisition date and whether the policy is monthly or full-year in the year of purchase.
  • If a question includes goodwill, remember it is not amortised.
  • For multiple response questions, select exactly the stated number of options and use the rule: expense in profit or loss, accumulated amount in the statement of financial position.
  • In number entry questions, enter the figure in the format requested and avoid typing symbols or commas unless allowed.

Practice questions from Intangible non-current assets and amortisation

Amortisation of Intangible Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Amortisation of Intangible Assets: frequently asked questions

What is the difference between depreciation and amortisation?

Both spread the cost of an asset over its useful life. Depreciation applies to tangible assets such as machinery. Amortisation applies to intangible assets with a finite life such as software or patents.

What is the journal entry for amortisation?

Debit amortisation expense and credit accumulated amortisation. The expense appears in profit or loss. The accumulated amount is deducted from cost in the statement of financial position.

Is goodwill amortised under IFRS?

No. Goodwill has no amortisation charge under IFRS. It is reviewed for impairment at least annually.

Do intangible assets have a residual value?

Normally no. IAS 38 presumes zero residual value, with limited exceptions. In ACCA FA questions, assume zero unless the question states otherwise.