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in the note if question does not state where to include the depreciation charge of a plants FV then where should i include depreciation in the statement of profit and loss
Admin expense or cost of sale
Normally cost of sales … but it would be an unusual situation for there to be an exam question where you are NOT told where to include depreciation
question 1)
In BPP exam kit,in question 33 their is a note which says that subsidiary owns an intangible asset and who’s FV is worth $20million.It has remaining life of 5 year,however it is renewable indefinitely at nominal cost.
My question is why parent didn’t amortised it??????
question 2)
If an asset it amortised where should i include the value of amortisation in the consolidated statement of profit and loss?????
“My question is why parent didn’t amortised it??????” – over what period? It effectively has an indefinite life – “it is renewable indefinitely at nominal cost”
Amortisation of an intangible is the equivalent of depreciation of a tangible.
And depreciation is (most often) taken to cost of sales – at least, in exam questions it is
So that’s where I would take amortisation for the year and that’s where an exam question will most likely direct you to take it …. unless (as is most improbable) the question directs an alternative treatment
So sir if the intangible asset is not renewable then i would have amortised it for the period….
That’s ok, but …….
……. if that intangible is goodwill, then that ISN’T amortised
Oh no! Goodwill arising on the acquisition of a subsidiary is not amortised
Instead, it is subject to an annual impairment review.
The effect of writing off the asset over a period of time is similar, but amortisation suggests an annual amount written off over a predefined period (or, at least, at a pre-determined annual rate) whereas …..
….. an annual impairment review may lead in one year to a zero impairment and, in the very next year it could be (say) a 10% impairment
The year after it could be just a 2% impairment and followed by (say) a 20% impairment, itself followed by a zero impairment
OK?
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