Hello,
A company purchased an intangible asset (software) for £ 10000 on 10 January 2015 and started using it on 20 January 2015. The useful economic life of the software is 5 years and the amortization method is "straight-line":
1) Should the amortization expenses be recorded to the general ledger monthly or annually? Is there a strict rule regarding that?
2) If annually, should the records be made to the general ledger on 20 January of each subsequent year or at the end of each finanial year (on 31 Dec)?
3) If montly, should the records be made to the general ledger on the 1st day of each month?
Thank you very much.
Replies (4)
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If you are not producing monthly management accounts I would enter the amortisation charge at the year end only.
Well the difference between 355 days and 365 days is probably trivial, so I am not sure why you are asking.
But leaving that aside, the answer to your question is that whether to charge a full year's worth of depreciation in the year of purchase, or only a time apportioned charge from the actual date of purchase, is a matter for your company's existing accounting policy. What does it do with other assets?
If it has no policy. the one I would recommend is time apportionment in the year of purchase.