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

Delta Co has a brand with a finite useful life. At the start of the year its carrying amount was $180,000 with 6 years of remaining life and no residual value. After one year, management revises the remaining useful life to 3 years from the start of the next year. What is the amortisation charge in the second year?

The charge is $50,000. After the first year's $30,000 amortisation the carrying amount is $150,000, and the revised estimate of 3 years is applied prospectively, so $150,000 divided by 3 gives $50,000 without restating prior years.

  1. A$50,000Correct
  2. B$30,000
  3. C$60,000
  4. D$25,000

Explanation

Year one charge is $180,000 / 6 = $30,000, leaving $150,000. The change in useful life is a change in estimate applied prospectively. The carrying amount of $150,000 over the 3 remaining years gives $50,000. Using $30,000 ignores the revision; $60,000 spreads $180,000 over 3 years.

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