In Romania, starting from the Regulationas requests (CE) no. 1606/2002 and the national regulations are obliged to apply the IFRS starting with 1st of January 2007 the entities whose immovable values, at the balance date, are admitted to the transactionamortization, non current assets, accounting information, IAS-IFRS.

Brabete Valeriu

Dragan Cristian

English

Research Papers in Economics

796 
 
COMPARATIVE ANALYSIS REGARDING THE AMORTISATION OF NON 
CURRENT ASSETS IN A NATIONAL AND INTERNATIONAL CONTEXT 
 
Brabete Valeriu 
University of Craiova Facultatea de Economie şi Administrarea Afacerilor Cartier Rovine, Str. 
Milcov,  Bl.  B22,  Sc.  1,  Ap.  13,Craiova,  Dolj,  cod  200812  E-mail:  vali_brabete@yahoo.com 
Telefon: 0723144502  
Drăgan Cristian  
University of Craiova Facultatea de Economie şi Administrarea Afacerilor Str. Făgăraş, Nr. 18, 
Bl. D13, Sc. 2, Et. 2, Ap. 10, Craiova,  Dolj E-mail: cdragano@yahoo.com Telefon: 0726496717 
 
In Romania, starting from the Regulation‟s requests (CE) no. 1606/2002 and the national regulations are 
obliged to apply the IFRS starting with 1st of January 2007 the entities whose immovable values, at the 
balance  date,  are  admitted  to  the  transaction  over  a  settled  market,  with  the  purpose  of  drawing  up 
consolidated financial situations. This measure supposes a series of processing and accounting options 
specific to the international referential that points out, at the same time, the existent differences between 
the national and international norms in matter of amortizations. 
 
Keywords: amortization, non current assets, accounting information, IAS-IFRS.  
 
JEL code: M41 
 
The accounting system of a country is influenced by a series of factors such as the juridical 
system, the dominant manner of financing of the economic agents, the fiscal system, the inflation 
level, the economical system, the political system etc., this is the reason for which there are 
significant differences from one accounting system to another.  
As a result of the mentioned factors may be identified to all levels of an accounting system, 
among which we remember: to the level of organizations of accounting normalization, to the 
level of used terminology, to the level of accounting principles and to the level of drawing up 
practice of financial statements and financial communication.  
The differences between the accounting systems generate acceptance difficulties of the financial 
situations drew up by companies for the users in environments sensitive towards the original 
country ones of the issuing company.  
The accentuation of national economies globalization and of integration of financial markets and 
informational  systems  claims  the  using  of  a  common  accounting  language.  That  is  why  the 
attracting of the international patrimony must be based upon an offer of relevant information, 
intelligible, and mostly, comparably elaborated in an accounting language, generally accepted.  
The  investors  and  financial  analysts  need  to  understand  the  financial  statements  of  foreign 
companies whose shares would like to purchase, will be able to compare financial statements of 
companies located in different countries and ensure that the information is relevant and reliable.  
In the national accounting system, the financial communication is made in accordance with the 
Accounting  Regulations  and  with  the  European  directives.  This  way,  for  operators,  was 
transposed into the national law the Directive IV and VII resulting the accounting Regulations in 
accordance with the European directives. Also other institutions with regulatory powers such as 
NBR, Supervisory Commission and the National Insurance Securities regulations developed in 
accordance with the European directives specific areas of activity appropriate entities regulated 
and supervised by them.  
The Romanian accounting law foresees the applying of accounting regulations in accordance 
with  the  European  directives,  and  the  International  Financial  Reporting  Standards  (IFRS). 
European Union Member States have proceeded with the implementation of IFRS in accordance 
with the Regulation (EC) no 1606/2002 of the European Parliament dated on 19 July 2002 on the 797 
 
application  of  international  accounting  standards.  This  way,  according  to  this  Regulation, 
member states shall apply the IFRS in the consolidated financial statements.  
In Romania, starting from the requirements of Regulation (EC) no 1606/2002 and the national 
regulations are required to apply IFRS from 1
st of January 2007 the entities whose securities at 
the balance sheet date, are admitted to trading on a regulated market, for the purpose of preparing 
consolidated  financial  statements.  Other  public  entities  may  apply  IFRS  in  preparing  the 
consolidated or individual financial needs for their information.  
At the same time, there must be mentioned also an important aspect, which concerns the fact that 
in the business relationship with the state institutions the reporting base will be represented by 
rules  in  accordance  with  accounting  guidelines,  including  the  collection  of  information 
underlying  the  determination  of  taxes.  Therefore  the  financial  statements  obtained  by  the 
application of IFRS are intended for users of information, other than the state institutions. Also, 
bear in mind that all entities are required to apply or have opted to apply IFRS must ensure the 
continuity of their application.  
Differences between the law governing issues relating to amortization and certain provisions of 
IAS/IFRS are essential in many ways only if we refer to the terms of amortization, amortization 
election  methods,  review  of  terms  and  methods  of  amortization  etc.  What  essentially 
distinguishes the current Romanian law, the amortization of the recommendations contained in 
the international norms, to which I referred, relates primarily to the exercise of professional 
specialists of reasoning at that moment, and finds not only equivalent a very small extent in the 
national rules. This is, in our opinion, a very important aspect with numerous implications on the 
quality of information provided by accounting.  
In  this  context  we  believe  that  several  issues  must  be  accepted  that,  in  our  view,  are  very 
important and should be taken into account as working hypotheses when addressing the issue of 
amortization  in the transition  from  the  specific accounting  processes  at the national  rules in 
accordance with IAS/IFRS.  
According to IAS 16, and IAS 38 after initial recognition of a tangible or intangible assets will be 
valued  at  its  cost  less  any  accumulated  amortization  and  any  accumulated  impairment  loss. 
International  standards  define  amortization  as  the  systematic  allocation  of  the  amount  of 
amortization on an asset throughout its useful lifetime.  
Useful life duration is defined by:  
- the period during which an asset is set to be available for use by an entity (in years);   
- the number of units produced or some similar units expected to be obtained through the use of 
enterprise assets respectively.  
The  spirit  of  international  rules  is  different  from  what  national  law  requires  in  terms  of 
amortization. This way, in the international referent‘s vision the entity is the one that decides 
which method of amortization and estimates the useful life duration. In other words, in this 
context, professional reasoning becomes very important, whereas specialists should call him not 
only at the beginning of life of an asset, but later, when it can become necessary to review the life 
or use other methods of amortization.  
If in the case of tangible assets the life duration can be expressed in number of years of use or 
number of products or similar units expected to be obtained from using the asset, in the case of 
intangible assets determining the life duration is slightly more complex, since the entities must 
assess whether the life of a intangible assets is determined or not, and if it is determined which 
one is that (expressed in years or units of products).  
Another specific aspect of the international referent refers to the periodic review of the terms of 
useful life for corporal and non-corporal immobilizations (at least the end of each financial year), 
and if the new estimates differ significantly from those earlier, the amortization costs associated 
with current period and future periods should be adjusted. It is possible that the useful life of an 
asset could be extended by carrying out upgrades to get more performance, or may diminish as a 798 
 
result of technological advances or changes in market structure. In these cases, similar machines, 
but which are used by different companies with activity in different areas may have different 
durations of life.  
An element, also specific to the international accounting rules is referred to determine the value 
of  amortization.  In  this  context,  a  new  concept,  namely  the  residual  value,  defined  as  the 
estimated amount that an entity could obtain by ceasing an asset, after deducting the estimated 
costs for disposal, if the assets have already provided the age and condition at the end of life 
useful life.  
Often,  in  practice,  the  residual  value  is  insignificant  and  not  taken  into  consideration  in 
calculating the amortization, but when the entity intends to replace the asset before the end of life 
duration of this economic value should be estimated. Specifically, the residual value is realized 
by comparison with similar assets, at end of life or on the basis of the contract (for leasing).  
Therefore, the amortization is determined by subtracting the cost of the asset (or other value 
substitutable cost) of the estimated residual value. However, it should be recalled that the residual 
value of an asset may increase to a value equal to or greater than the book value of assets. If this 
happens,  the  asset  amortization  costs  are  equal  to  zero  unless  and  until  no  residual  value 
subsequently decreases to a value below the asset value accounting.  
As  regards  the  methods  of  amortization  should  be  noted  that  international  standards  do  not 
prescribe specific methods, but states that for the systematic allocation of the amortization of an 
asset during its use can be used several methods, by reference to straight-line method digressive 
or method of production units. Entities must select the method that most reliably reflects the 
expected  pattern  of  consumption  of  future  economic  benefits  embedded  in  an  active  and 
consistently applied from one period to another, unless there is a change in the expected rate of 
consumption of those future economic benefits.  
The method of amortization applied to assets should be reviewed at least at each end of the year 
when there is a change in pattern of consumption of future economic benefits brought by the 
active method will be changed to reflect this change.  
Regarding the accounting amortization, the international rules stipulate the recognition in the 
profit and loss expenses for amortization, if not included in the value of another asset.  
In  terms  of  amortization  on  property  issues,  the  national  regulations  are  distinguished  by  a 
number of elements of international accounting standards. In this context, we refer the more rigid 
rules of accounting in accordance with European directives on the one hand, and tax rules, on the 
other  hand,  compared  with  the  accounting  policies  promoted  by  international  accounting 
standards in terms of amortization.  
In the vision of national redemption value is an expression which corresponds to irreversible 
impairment of tangible and intangible assets as a result of their use, the natural factors and moral 
wear.  
Results that from this point of view the amortization takes on the one hand, an economic aspect, 
by the inclusion in operating expenses amortization of the value of products, and on the other 
hand, a financial aspect, by the formation of the source necessary to replace immobilizations 
depreciate totally or to finance of some new ones.  
Entities who apply the accounting rules in accordance with the European directives determine the 
amortization by applying the amortization rates on the value of tangible entry or values remained 
updated, according to case.  
We consider for starting that it must be clarified the input value concept as it is defined by the 
national standards, specifying that the tax rules aim at strictly the entry value of the fixed assets 
amortization. So, by the entry value of the fixed assets is understood:  
- cost for fixed assets purchased with for good and valuable consideration;  
- cost of production for fixed assets constructed or produced by the taxpayer;  
- the market value for fixed assets acquired free of charge.  799 
 
For tangible assets that are used in lots, sets, or as a single body, lot or set, to determine the 
amortization  is  taken  into  account  the  value  of  the  whole  body,  lot  or  set.  For  components 
included in the structure of an active body, which during normal usage differs from the result of 
the asset, amortization is calculated for each component separately. In this case it is found close 
to the national law of international norms.  
As regards the amortization periods should be made some distinction between the tangible and 
intangible assets.  
In the case of intangible assets, national regulations set the following rules:  
- expenses of constitution must be redeemed within a period not exceeding five years;  
- expenses related to acquisition of patents, copyrights, licenses, trade marks and other factory or 
similar  values  and  development  costs  in  accounting  intangible  assets  is  recovered  through 
amortization deductions during the contract period or use as appropriate;  
- expenses related to acquisition or production of software are recovered through amortization 
deductions over a period of 3 years.  
Some features show goodwill, which under tax legislation is not considered active redeemable. 
However, accounting rules in accordance with European directives that specify where goodwill is 
treated as an asset, as a result of the acquisition by an entity of the actions of another entity, 
should be considered the following issues:  
- goodwill is amortized, usually within a period not exceeding five years;  
- however, entities may recover the goodwill systematically over a period exceeding five years, 
provided that this period does not exceed the duration of use of economic assets.  
Regarding the tangible assets, in our country the normal using durations of fix assets are set by 
the central government decision, being periodically reviewed. As required by the normative act 
referred to, the normal operating period is to use the recovered in terms of tax, the input of fixed 
assets by amortization. Consequently, the normal functioning duration is more reduced than the 
physical  life  time  of  the  respective  fix  asset.  Even  if  by  the  new  Catalogue  regarding  the 
classification and normal functioning durations of the fix assets are foreseen intervals of time 
within which operators can choose the length that are considered optimal with respect to their 
economic needs, however, view that the very many cases, especially minimum required by the 
normative act does not coincide with the views of experts/technicians in production.  
In Romania, companies are required to amortize the intangible and tangible assets in accordance 
with  the  legislation  in  force,  using  linear  amortization  regimes,  digressive  or  accelerated. 
Moreover, tax legislation requires to a large extent even the type of method to be applied to one 
category or the other non current assets.  
So,  trying  to  make  a  quick  comparative  analysis  between  the  two  referential  accounts,  the 
conclusions can be drawn as shown in the table below:  
 
Explanations   International standards   National regulations 
Defining 
amortization 
Systematic  allocation  of  the 
amortizable  value  of  an asset  upon 
its entire useful life duration.  
The  value  expression  that 
corresponds  to  the  irreversible 
depreciation  of  the  tangible  and 
intangible assets as a result of their 
using,  of  the  natural  factors  action 
and moral usage.  
Professional 
reasoning 
Has  a  very  important  role  in 
applying the accounting politics.  
The national regulations are enough 
rigid and do not allow the manifest 
of  the  professional  reasoning  but 
only in a small measure.  
Amortization 
durations 
Are  estimated  by  the  economical 
entities by applying the professional 
Established in  a  centralized  manner 
by  normative  acts,  without  the 800 
 
reasoning and periodical reviewed.   revision possibility.  
Amortization 
value 
Cost of the asset diminished with the 
residual value.  
Entrance value.  
Residual value  Is an element estimated by applying 
the professional reasoning and taken 
into  account  to  establish  the 
amortizable value.  
This concept is not used.  
Amortization 
method 
Are  not  imposed  certain  methods, 
the  entity  having  the  possibility  to 
establish the method type to apply. 
By  the  professional  reasoning  the 
methods are periodical reviewed.  
Are  imposed  three  methods  of 
amortization  (linear,  digressive  and 
accelerated),  the  entities,  in  many 
situations, not having the possibility 
of  choosing  for  the  amortization 
method.  
 
References 
1.  Brabete  Valeriu,  Prelucrări  și  opțiuni  contabile  generate  de  directivele  europene  și  IFRS, 
Editura Universitaria, Craiova, 2007. 
2.  Epstein  B.  J.,  Mirza  A.  A.,  Interpretarea  și  aplicarea  Standardelor  Internaționale  de 
Contabilitate și Raportare Financiară, BMT Publishing House, București, 2005. 
3. Greuning H., Standarde Internaționale de Raportare Financiară. Ghid practic, Editura Irecson, 
București, 2005. 
4. IASB, Standarde Internaționale de Raportare Financiară, Editura CECCAR, București, 2007. 
5. Legea nr. 571/2003 privind Codul fiscal, cu modificările şi completările ulterioare, Monitorul 
Oficial nr. 927/2003. 
6.  OMFP  nr.  1752/2005  pentru  aprobarea  reglementărilor  contabile  conforme  cu  directivele 
europene, Monitorul Oficial nr.1080 bis / 2005. 
7. OMFP nr. 1121/2006 privind aplicarea Standardelor Internaţionale de Raportare Financiară, 
Monitorul Oficial nr. 602 din 12 iulie 2006. 
   

1121/2006 privind aplicarea Standardelor Internaţionale de Raportare Financiară, Monitorul Oficial nr. 602 din 12 iulie

1752/2005 pentru aprobarea reglementărilor contabile conforme cu directivele europene,

571/2003 privind Codul fiscal, cu modificările şi completările ulterioare, Monitorul Oficial nr.

Internaționale de Raportare Financiară,

Interpretarea și aplicarea Standardelor Internaționale de Contabilitate și Raportare Financiară,

Prelucrări și opțiuni contabile generate de directivele europene și IFRS, Editura Universitaria,

Standarde Internaționale de Raportare Financiară. Ghid practic, Editura Irecson,

COMPARATIVE ANALYSIS REGARDING THE AMORTISATION OF NON CURRENT ASSETS IN A NATIONAL AND INTERNATIONAL CONTEXT

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COMPARATIVE ANALYSIS REGARDING THE AMORTISATION OF NON CURRENT ASSETS IN A NATIONAL AND INTERNATIONAL CONTEXT

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