Describe the amortisation requirements for certain identifiable intangible assets and the changes to accounting for goodwill introduced as part of the convergence with international accounting standards. How will these changes affect reported profit?
General amortisation requirements
Intangible assets (other than goodwill) that are considered to have a limited useful life are required to be amortised over their useful lives defined as ‘the period of time over which the asset is expected to be used by the entity, or the number of production or similar units expected to be obtained from the asset by the entity’ (Para 8 AASB 138). Amortisation methods based on time would be applied to intangible assets whose lives are limited by time. Same applies to intangible asset’s life limited to the production of a certain number of units of product. Where the pattern of benefits is uncertain, straight-line method is required to be used. Amortisation shall begin when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. Amortisation shall cease at the earlier of the date that the asset is classified as held for sale. (Para 97 AASB138) Where an asset is considered to have an indefinite life, there is no requirement to amortise the asset. An indefinite life does not mean the same as an infinite life. Although there is no requirement to amortise intangible assets that are considered to have an indefinite life, such assets are required to be subject to impairment testing at the end of each reporting period. If there is deemed to be an impairment in the value of the asset (its recoverable amount is less than its carrying amount) this amount of impairment is shown as an expense. AASB 138 requires the assumption that the asset has an indefinite life to be reviewed annually. Amortisation charges must be expense unless another standard requires the amount to be...
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