ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation
Orla Co purchased a patent on 1 April 20X1 for $90,000 with a legal life of 10 years. Orla expects to use the patent for only 6 years. Amortisation is straight-line with no residual value and is charged monthly from the date of purchase. What is the amortisation charge for the year ended 31 December 20X1?
The patent must be amortised over its expected useful life of 6 years, not its 10-year legal life. The annual charge is $15,000, and for nine months of ownership to 31 December 20X1 the charge is $11,250.
- A$6,750
- B$9,000
- C$11,250Correct
- D$15,000
Explanation
Amortisation is over the useful life of 6 years, not the legal life: $90,000 / 6 = $15,000 per year. For 9 months (April to December) the charge is $15,000 x 9/12 = $11,250. Using the legal life of 10 years gives $6,750, which is wrong.
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