ACCA Applied Knowledge · Financial Accounting · Disclosure notes
On 1 January 20X1 Orion Co bought a licence for $120,000 with a 10-year useful life and no residual value, amortised straight-line. On 1 January 20X3 the entity reviewed the asset and revised the remaining useful life to 4 years from that date. What amortisation charge should be disclosed for the year ended 31 December 20X3?
The charge is $24,000. Carrying amount after two years is $96,000 ($120,000 less $24,000). A change in useful life is a change in estimate, applied prospectively, so $96,000 is spread over the remaining four years.
- A$12,000
- B$24,000
- C$30,000Correct
- D$25,000
Explanation
Carrying amount at 1 January 20X3 = 120,000 less 2 years x 12,000 = 96,000. The change in estimate is applied prospectively over the remaining 4 years: 96,000 / 4 = $24,000. Check: 24,000 x 4 = 96,000. So the answer is $24,000, not $30,000.
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