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

Brindle Co bought a licence on 1 April 20X1 for $90,000 with a useful life of 5 years and no residual value. Brindle charges amortisation monthly from the date of acquisition. Its year end is 31 December. What is the carrying amount of the licence at 31 December 20X2?

The carrying amount is $58,500. Annual amortisation is $18,000; the first year bears nine months ($13,500) and the second a full year ($18,000), totalling $31,500, which is deducted from the $90,000 cost.

  1. A$58,500Correct
  2. B$54,000
  3. C$72,000
  4. D$63,000

Explanation

Annual charge = $90,000 / 5 = $18,000. 20X1: 9 months = $13,500. 20X2: full year = $18,000. Accumulated amortisation = $31,500, so carrying amount = $90,000 - $31,500 = $58,500. $54,000 assumes two full years' charge ($36,000). $72,000 charges only one year. $63,000 charges 20X1 as 9 months but 20X2 as 9 months.

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