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CA Foundation · Accounting · Depreciation and Amortisation

Under AS 26, how should the amortisation method for an intangible asset be selected when the pattern of future economic benefits cannot be determined reliably?

The straight-line method must be used when the pattern of consumption of future economic benefits cannot be reliably determined. AS 26 requires the amortisation method to reflect that pattern, and straight-line is the default fallback, charged to profit and loss each period.

  1. AWritten down value method at 15%
  2. BStraight-line methodCorrect
  3. CNo amortisation until the asset is sold
  4. DCharge the entire cost to reserves

Explanation

AS 26 requires the amortisation method to reflect the pattern of consumption of benefits. If that pattern cannot be determined reliably, the straight-line method must be used. Not amortising or charging to reserves is not permitted.

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