Af 210 – Financial Accounting

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Part B

In order to determine the amortisation expense, FRU should establish if the players have a finite or infinite useful life. IAS 38 explains that an intangible asset’s useful life must not surpass the period of contractual or other legal rights which arises from the contractual or other legal rights (IASPlus, 2014). The players are deemed to have a finite useful life because of the signed contract agreement and the contractual rights associated with it. Since the players are bought into the team under a contract for a specific contract term, it can be said the players have a limited useful life (the duration of the contract term). Once the contract expires, the player is either bought by another team or the same team renews the contract. With reference to IASPlus (2014), IAS 38 further explains that for an intangible asset with a limited useful life, amortization is necessary on a systematic basis over its useful life by using either the straight line, diminishing balance or unit of production method. FRU should start amortising the players when the players are bought into and starting playing for the team (asset is available for use) and amortisation should cease when the player is transferred to another team. Further this amortisation expense is to be recognised in the profit and loss statement of FRU.

(No. of words: 312)

Bibliography

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