Start of amortisation: available for use

Learning objectives

• Determine the date on which amortisation of an intangible asset begins.L1, L2
• Calculate a time-apportioned amortisation charge from the date the asset is available for use.L2

Normative references

• IAS 38 §97The depreciable amount of an intangible asset with a finite useful life is allocated on a systematic basis over its useful life, starting when the asset is available for use (location and condition intended by management). Amortisation ceases at the earlier of the date the asset is classified as held for sale (IFRS 5) and the date it is derecognised. The method reflects the pattern in which the benefits are expected to be consumed; if that pattern cannot be determined reliably, the straight-line method is used. The charge is recognised in profit or loss unless a Standard permits or requires it to be included in the carrying amount of another asset.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

16 questions

• An entity acquires an operating licence for {licence_cost}, amortised on a straight-line basis over a useful life of {useful_life}, with no residual value. The licence is available for use on 1 April, but the entity only starts using it on 1 July. What is the amortisation charge for the year ending 31 December?L2
• True or false? Amortisation of an intangible asset with a finite useful life begins as soon as it is available for use, even if the entity only actually uses it later.L1
• True or false? Amortisation of a software licence begins when the purchase contract is signed, even if several months of installation are still needed before the software can operate.L1
• True or false? Amortisation of an intangible asset with a finite useful life ceases at the earlier of the following two dates: the date it is classified as held for sale under IFRS 5 and the date it is derecognised.L1
• True or false? An entity that capitalises development expenditure must amortise the asset under development from the first amount capitalised, without waiting for the project to be completed.L2
• From what date does an intangible asset with a finite useful life start to be amortised?L1
• Transports Lemerle buy planning software on 1 February 20X1. Installation and configuration are completed on 1 March 20X1: the software is then available for the use intended by management. After user training, it is used from 1 May 20X1. From what date is the software amortised?L2
• An entity amortises a licence with a finite useful life on a straight-line basis. On 30 September 20X2, the licence is classified as held for sale under IFRS 5; it is sold and derecognised on 31 January 20X3. Until what date is it amortised?L2
• Cabinet Ravenne acquires on 1 March 20X1 a document management software licence for {licence_cost}, amortised on a straight-line basis over {useful_life}, with no residual value. The software has to be integrated into the firm's information system: the work is completed on 1 September 20X1, the date on which it is available for use. The teams only use it from 1 November 20X1. Calculate the amortisation charge for the year ended 31 December 20X1.L2
• Assurances Pérignac complete on 1 October 20X2 the development of a claims management application, whose capitalised cost amounts to {capitalised_cost}. On that date, the application is available for use; however, it will only be rolled out to claims handlers on 1 January 20X3. The application is amortised on a straight-line basis over {useful_life}, with no residual value. What is the amortisation charge for the year ended 31 December 20X2?L2
• Verreries Lunel, whose financial year ends on 31 March, acquire a process patent on 1 August 20X1 for {patent_cost}. The patent is available for use as soon as it is acquired, but the entity only starts exploiting it on 1 February 20X2, for lack of orders. It is amortised on a straight-line basis over {useful_life}, with no residual value. Calculate the amortisation charge for the year ended 31 March 20X2.L2
• Éditions Morlaix amortise on a straight-line basis, over {useful_life} and with no residual value, a distribution licence acquired for {licence_cost} and available for use for several years. On 31 May 20X3, the licence is classified as held for sale under IFRS 5; it is sold and derecognised on 31 October 20X3. Calculate the amortisation charge for the year ended 31 December 20X3.L2
• A biotechnology company is drafting its amortisation policy for intangible assets with a finite useful life. Which of the following statements comply with IAS 38?L3
• A pharmacy chain closes its accounts on 31 December 20X1. It acquired prescription management software for {software_cost}, ready for use on 1 April 20X1, that is {months_in_use} months before the year-end. Its useful life is {useful_life} years; the pattern of consumption of the benefits cannot be determined reliably and no residual value is assumed. Record the amortisation entry at 31 December 20X1.L2
• The Fournil d'Opale bakery network buys an exclusive regional franchise contract for {franchise_cost}. The contract is signed in March 20X3, but the rights can only be exercised from 1 July 20X3, when the first outlet opens, that is {months_available} months before the year-end of 31 December 20X3. The useful life is {franchise_life} years, the straight-line method is used and the residual value is nil. Which amortisation entry should be recorded for 20X3?L2
• The Marée Haute fishing company acquires a transferable fishing quota for {quota_cost} and will use it for {quota_life} years. These quotas are traded on an active market, by reference to which the residual value at the end of use is determined at {market_residual}; that market will probably still exist at the end of the quota's use. The quota is available for use on 1 October 20X1, that is {months_first_year} months before the year-end of 31 December 20X1. The straight-line method is used. Calculate the depreciable amount and the charge for 20X1.L3