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

Zenith Co acquired a software licence on 1 January 20X1 for $60,000. It has a finite useful life of 5 years and no residual value. Zenith uses the straight-line method. What is the amortisation charge in the statement of profit or loss for the year ended 31 December 20X2, and the carrying amount at that date?

The annual charge is $12,000 ($60,000 divided by 5 years) and after two years accumulated amortisation is $24,000, leaving a carrying amount of $36,000. The $48,000 figure wrongly deducts only one year of amortisation from cost.

  1. ACharge $12,000; carrying amount $36,000Correct
  2. BCharge $12,000; carrying amount $48,000
  3. CCharge $24,000; carrying amount $36,000
  4. DCharge $15,000; carrying amount $30,000

Explanation

Annual amortisation is $60,000 / 5 = $12,000. After two years accumulated amortisation is $24,000, so carrying amount is $60,000 - $24,000 = $36,000. The option with $48,000 shows only one year of amortisation accumulated.

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