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

Pello Co capitalised development costs of $240,000 on 1 January 20X4. Commercial production began on 1 July 20X4 and the product is expected to be sold for 5 years from that date, with amortisation on a straight-line basis and no residual value. What is the carrying amount of the development asset at 31 December 20X5?

The carrying amount is $168,000. Amortisation starts when commercial production begins on 1 July 20X4, at $48,000 a year over five years. Eighteen months to 31 December 20X5 gives $72,000 amortisation, leaving $240,000 less $72,000.

  1. A$156,000Correct
  2. B$168,000
  3. C$144,000
  4. D$192,000

Explanation

Amortisation starts when production begins, 1 July 20X4. Annual charge is $240,000/5 = $48,000. The period from 1 July 20X4 to 31 December 20X5 is 18 months, so amortisation is $72,000. Carrying amount is $240,000 - $72,000 = $168,000. Check the options: $168,000 is the result, so the key must be that figure.

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