ACCA Applied Knowledge · Financial Accounting · Intangible non-current assets and amortisation
Zeta Co acquired a patent on 1 January 20X1 for $120,000. It has a legal life of 10 years, and Zeta uses the straight-line method with no residual value. What is the amortisation charge for the year ended 31 December 20X1?
The annual charge is $12,000, because the $120,000 cost with no residual value is spread evenly over the 10-year life under the straight-line method. Full-year amortisation applies as the patent was acquired on the first day of the year.
- A$12,000Correct
- B$10,000
- C$120,000
- D$24,000
Explanation
Straight-line amortisation = cost less residual value divided by useful life = $120,000 / 10 = $12,000 per year. $10,000 wrongly uses 12 years. $24,000 uses a 5-year life. $120,000 expenses the whole cost immediately.
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