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ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation

Brindle Co bought a customer database on 1 January 20X1 for $120,000 and amortised it straight-line over 6 years with no residual value. On 1 January 20X3 Brindle reassessed the remaining useful life as 2 more years (4 years in total from purchase). What is the amortisation charge for the year ended 31 December 20X3?

A change in useful life is a change in estimate applied prospectively. The carrying amount at 1 January 20X3 is $80,000 after two years at $20,000, and spreading it over the remaining 2 years gives an annual charge of $40,000.

  1. A$20,000
  2. B$30,000
  3. C$40,000Correct
  4. D$50,000

Explanation

Amortisation for 20X1 and 20X2 was $20,000 per year, so carrying amount at 1 January 20X3 is $120,000 - $40,000 = $80,000. A change in estimate is applied prospectively over the remaining 2 years: $80,000 / 2 = $40,000. Spreading over 4 years would give $20,000 and restating prior years is wrong.

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