In the following cases, record Journal Entries for amortization in the books of Huge Ltd. for the year ended 31st March, 2024 with reference to…

CA Intermediate · Advanced Accounting · PYQS · September 2024
In the following cases, record Journal Entries for amortization in the books of Huge Ltd. for the year ended 31st March, 2024 with reference to AS-26: (i) The company had acquired Patent Rights for 340 lakhs on 01.04.2022. The estimated product life is 4 years. Amortization was decided in the ratio of estimated future cash flows which are as under: 1 st Year 140 Lakhs 2 nd Year 350 Lakhs 3 rd Year 280 Lakhs 4 th Year 420 Lakhs (ii) The company had developed know-how by incurring expenditure of 80 lakhs. The know-how has been used by the company since 01.04.2018. Its useful life is 8 years from the year of commencement of its use. The company has not amortised the asset until 31.03.2024.

Suggested Answer and Working Notes:

(i) Journal Entry for the year ended on 31st March 2024 ₹ in lakhs ₹ in lakhs 31.3.24 Amortization A/c (340 × 350/ 1,190) Dr. 100 To Patent Rights A/c 100 P&L A/c Dr. 100 To Amortization A/c 100 Working note Huge Limited amortised 340lakhs during next 4 years on the basis of net cash flows arising of the product. The amortisation for second year will be worked out as under: 340 x 350/1,190 (140+350+280+420) = 100 lakhs (ii) Particulars ₹ in lakhs ₹ in lakhs Prior period item Dr. 50 Amortization A/c Dr. 10 To Know-how A/c 60 [Being amortization of 6 years (out of which amortization of 5 years charged as prior period item i.e. 80 x 6 /8 = 60 lakhs)] Profit and Loss A/c Dr. 60 To Amortization A/c 10 To Prior Period Item 50 (Being amount transferred to Profit and Loss account)

Topics: AS 26

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