AMORTISATION

Question 1

When does an entity amortise an intangible asset?

Answer 1

An entity amortise an intangible asset if both the follow condition are respected:
- the intangible asset is ready for use
- the intangible asset has a finite useful life

Question 2

Does entity amortise intangible assets with indefinite useful life?

Answer 2

No, enity do not amortise intangible assets with indefinite useful life.
Indeed, test annually for impairment in accordance with IAS 36.

Question 3

Which factors should an enity consider when estimating the useful life of an asset?

Answer 3

• Expected usage if asset by the entity
• Typical product life cycles for the asset
• Obsolescence
• The stability of the industry in which the asset operates and changes in the market demand for the products or services output from the asset
• Expected actions by competitors or potential competitors
• The period of control over asset

Question 4

What means that is required a professional judgement when deciding useful life of an asset?

Answer 4

Significant uncertainty may exist when determining useful life, so
* Determine useful life on prudent basis
* Entity should not determine useful life that is unrealistically short

Question 5

Can the useful life of intangible asset arising from contractual or legal rights exceed the period of the contractual or other legal rights?

Answer 5

Generally No, but there are exception when renewal terms exist.

Question 6

Where contractual or other legal rights conveyed for limited term, when useful life includes renewal terms?

Answer 6

If there is evidence (possibly from experience) to support renewal by entity without significant cost and there is evidence that any renewal conditions will be met

Question 7

Where contractual or other legal rights conveyed for limited term, when useful life does not include renewal terms?

Answer 7

where cost of renewal is significant compared with future economic benefits from the renewal. The
renewal cost instead represents a new intangible asset

Question 8

What shall shows the amortisation method of an intangible asset with finite useful life?

Answer 8

The amortisation method of an intangible asset with a finite useful life shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity (straight line if cannot be determined reliably).

Question 9

Which are the most common amortisation method used?

Answer 9

• Straight line:
  constant charge over assets useful life
• Diminishing balance:
  decreasing charge over assets useful life
• Units of production:
  charge based on expected use or output

Question 10

When does an entity review amortisation period and amortisation method fo intangible asset with a finite useful life?

Answer 10

At least each financial year-end.

Question 11

When the amortisation period or/and method change prospectively in accordance with IAS 8?

Answer 11

If there has been a change in:

• The expected useful life of the intangible asset, or
• The expected future economic benefits to be derived from the asset

Question 12

How is carried the test for impairment on intangible assets with indefinte useful lives?

Answer 12

Test for impairment, in accordance with IAS 36
Impairment, is carried by comparing assets recoverable amount with its carrying amount

Question 13

When should an enity Test for impairment an intangible asset with indefinite useful life?

Answer 13

‐ Annually, and
‐ Whenever there is an indication that the intangible asset may be impaired

Question 14

What is an indicator that intangible asset may be impaired?

Answer 14

when there is a change in useful life of an intangible asset from indefinite to finite

Question 15

When does the entity review if event and circumstances continue to support indefinite useful life?

Answer 15

Each period.
If indefinite useful life can no longer be supported, account for prospectively as change in accounting estimate in accordance with IAS 8.