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

Omega Co purchased a patent for $90,000 on 1 October 20X4 with a legal life of 10 years. Omega uses straight-line amortisation with a full-month basis and no residual value. What is the double entry to record amortisation for the year ended 31 December 20X4?

Debit amortisation expense and credit accumulated amortisation with $2,250. The patent costs $90,000 over ten years, giving $9,000 a year, and only three months of the year have elapsed, so the charge is $9,000 multiplied by 3/12.

  1. ADebit Amortisation expense $2,250; credit Accumulated amortisation $2,250Correct
  2. BDebit Amortisation expense $9,000; credit Accumulated amortisation $9,000
  3. CDebit Accumulated amortisation $2,250; credit Amortisation expense $2,250
  4. DDebit Patent asset $2,250; credit Amortisation expense $2,250

Explanation

Annual amortisation = 90,000/10 = $9,000. For 3 months (October to December) = 9,000 x 3/12 = $2,250. The charge is debited to profit or loss and credited to accumulated amortisation. Charging a full year ($9,000) ignores the time apportionment.

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