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

Kestrel Co has an intangible asset with a carrying amount of $45,000 at 1 January 20X2, being cost $75,000 less accumulated amortisation $30,000. The asset is amortised straight-line with no residual value, and 3 years of useful life remain at that date. What is the correct double entry for the year ended 31 December 20X2?

Debit amortisation expense and credit accumulated amortisation with $15,000, being the $45,000 carrying amount spread over the three remaining years. The expense reduces profit and the credit builds up accumulated amortisation against the asset's cost.

  1. ADebit amortisation expense $15,000; credit accumulated amortisation $15,000Correct
  2. BDebit amortisation expense $25,000; credit accumulated amortisation $25,000
  3. CDebit accumulated amortisation $15,000; credit amortisation expense $15,000
  4. DDebit amortisation expense $15,000; credit intangible asset cost $15,000

Explanation

Remaining carrying amount $45,000 / 3 remaining years = $15,000. The expense is debited to profit or loss and credited to accumulated amortisation. $25,000 would use the original cost over 3 years. Reversing the entry is wrong in direction. Crediting cost is not the normal method of recording amortisation.

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