ACCA Applied Skills · Financial Reporting · Intangible assets
Orchid Co capitalised development costs of $400,000 on 1 October 20X3 for a product launched on that date, with an expected life of 5 years and straight-line amortisation from launch. At 30 September 20X5, a review shows the recoverable amount of the asset is $200,000. What total charge to profit or loss for the year ended 30 September 20X5 arises from the asset (amortisation plus impairment)?
The total charge is $120,000. Amortisation for the year is $80,000, and the carrying amount before impairment is $240,000 after two years. Against a recoverable amount of $200,000, an impairment of $40,000 arises, giving $120,000.
- A$120,000Correct
- B$80,000
- C$40,000
- D$160,000
Explanation
Annual amortisation is $400,000/5 = $80,000. Carrying amount at 30 September 20X5 before impairment is $400,000 - 2 x $80,000 = $240,000. Impairment is $240,000 - $200,000 = $40,000. Total charge for the year is $80,000 + $40,000 = $120,000. Choosing $160,000 would wrongly impair from cost.
Did you get it right without looking?
One question tells you little. A timed set on Intangible assets shows your real accuracy, how long you take and where you lose marks.
More Intangible assets questions
- Zephyr Co incurred the following costs in the year: $120,000 on investigating new alloy compositions before any product was selected, and $8…
- Larch Co acquired 80% of Pine Co. At the acquisition date Pine had an internally developed customer database, which met the definition of an…
- Brindle Co spent $240,000 on a staff training programme this year which it believes will improve productivity for several years. It also pai…
- Which of the following internally generated items may be recognised as an intangible asset under IAS 38 if the relevant criteria are met?
- Which of the following is NOT one of the criteria that must be demonstrated before development expenditure is recognised as an intangible as…
- Cobalt Co bought a trademark for $150,000 plus $10,000 non-refundable purchase taxes. It also incurred $6,000 on staff to bring it into use,…