When the management has determined a useful life to an asset, the depreciable amount (acquisition cost or carrying value less any residual value if applicable) is allocated on a systematic basis over its useful life. In other words the value is expensed over determined months using one of the two methods available.
First things first, the amortization starts when the asset is available for use and ceases when the asset is derecognized or reclassified as held for sale. The period between those two dates is the expected period of useful live. Continue reading
Every intangible asset must have a deemed period of its useful life. According to IAS 38 this can either be finite or indefinite. The judgment between those two is something that is done by the management based on their industry-wide knowledge, experience in the company and any other future perspectives that need to be considered. This is a management estimate and usually there cannot be a right or wrong answer. However, every estimate must be reasonable and reasoned.
Obviously an asset with finite useful life is amortized. This is now where the second judgmental area kicks in – the period itself. Will it be 2 or 20 years or something in between? There are a few things that ought to be considered when determining the period: Continue reading