I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

PART D: RECORDING TRANSACTIONS AND EVENTS 

 

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If the pattern cannot be determined reliably, the straight-line method should be used (IAS 38, para. 97). 

For example, development costs totalling $150,000 have been capitalised as an asset. The asset is now 

available for use and economic benefits are expected to arise over the next five years. The amortisation 

will be 150,000/5 = $30,000 for each year. 

If the intangible asset is considered to have an indefinite useful life, it should not be amortised but 

should be subjected to an annual impairment review. 

(IAS 38, paras. 107–108) 

It should be noted that from 1 January 2016, amortisation based on revenue generated from the 

intangible asset is inappropriate. There are limited exceptions to this: 

 

Where the intangible asset is expressed as a measure of revenue 

 

Where it can be demonstrated that revenue and the consumption of economic benefits of the 

intangible asset are highly correlated 

(IAS 38, para. 98A) 

The amortisation period and amortisation method should be reviewed at each financial year end 

(IAS 38, para. 104). 

2.6 Impairment of development costs 

As with all assets, impairment (fall in value of an asset) is a possibility, but is perhaps more likely with 

development costs, when the asset is linked with success of the development. The development costs 

should be written down to the extent that the unamortised balance (taken together with further 

development costs, related production costs, and selling and administrative costs directly incurred in 

marketing the product) is no longer likely to be recovered from the expected future economic benefit.