ExpertEasy2 marksMultiple Choice
ACCA · Question 17 · Intangible Assets
SECTION B - CASE 1: AeroTech Drones
AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'):
- 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies.
- 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July.
- 1 Nov to 31 Dec: $200,000 on final testing and production setup.
The AgriFly drone was ready for use on 31 December 20X5.
Assuming the capitalized development costs have an estimated useful life of 4 years, what is the amortization charge for the year ended 31 December 20X5?
SECTION B - CASE 1: AeroTech Drones
AeroTech Drones Co manufactures specialized agricultural drones. The year-end is 31 December 20X5.
During 20X5, AeroTech incurred the following costs on a new drone project ('AgriFly'):
- 1 Jan to 30 Jun: $400,000 on initial research and feasibility studies.
- 1 Jul to 31 Oct: $600,000 on development. Commercial viability and technical feasibility were established on 1 July.
- 1 Nov to 31 Dec: $200,000 on final testing and production setup.
The AgriFly drone was ready for use on 31 December 20X5.
Assuming the capitalized development costs have an estimated useful life of 4 years, what is the amortization charge for the year ended 31 December 20X5?
Answer options:
A.
$0
B.
$100,000
C.
$200,000
D.
$50,000
How to approach this question
Determine when the asset became available for use. Amortization only commences from that date.
Full Answer
A.$0✓ Correct
According to IAS 38, amortization of an intangible asset begins when the asset is available for use (i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management). The AgriFly drone was ready for use on 31 December 20X5, the last day of the financial year. Therefore, no amortization is charged in 20X5.
Common mistakes
Starting amortization from the date capitalization began (1 July), resulting in a 6-month charge.
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