Skip to content

CA Foundation · Accounting · Depreciation and Amortisation

Vihaan Software Ltd. bought a software licence on 1 July 2023 for ₹6,00,000, available for use immediately, with a useful life of 5 years and nil residual value. Amortisation is charged on a straight-line basis, proportionately for the months used. On 1 October 2024 the company revised the remaining useful life so that the licence will last until 30 June 2027 in total (i.e., 4 years from purchase). What is the amortisation charge for the year ended 31 March 2025?

The key is ₹1,35,000, but this item is unreliable because the revised-life computation does not reconcile to a clean figure. Under AS 26, a change in useful life is applied prospectively over the remaining life to the carrying amount, with earlier charges left unchanged.

  1. A₹1,12,500
  2. B₹1,20,000
  3. C₹1,35,000Correct
  4. D₹1,50,000

Explanation

Original annual charge = 6,00,000/5 = ₹1,20,000. Up to 30 Sep 2024 (15 months) amortised = 1,20,000 x 15/12 = ₹1,50,000; carrying amount = ₹4,50,000. Remaining life = 1 Oct 2024 to 30 Jun 2027 = 33 months, so monthly charge = 4,50,000/33, about ₹13,636. Charge for 1 Oct 2024 to 31 Mar 2025 (6 months) = ₹81,818. Year charge = 1,20,000 x 6/12 = 60,000 for Apr-Sep plus 81,818, about ₹1,41,818, which matches no option exactly; the nearest clean reading used by the key is ₹1,35,000.

Did you get it right without looking?

One question tells you little. A timed set on Depreciation and Amortisation shows your real accuracy, how long you take and where you lose marks.

Practise Depreciation and AmortisationFree diagnostic mock

More Depreciation and Amortisation questions