A company had three intangible assets at the end of the current year: A patent p
ID: 2415179 • Letter: A
Question
A company had three intangible assets at the end of the current year:
A patent purchased this year from the company on January 1 for a cash cost of $8,400. When purchased, the patent had an estimated life of 14 years.
A trademark was registered with the federal government for $7,000. Management estimated that the trademark could be worth as much as $180,000 because it has an indefinite life.
Computer licensing rights were purchased this year on January 1 for $52,000. The rights are expected to have a four-year useful life to the company.
1.Compute the acquisition cost of each intangible asset.
2. Compute the amortization of each intangible for the current year ended December 31.
3. Show how these assets and any related expenses should be reported on the balance sheet and income statement for the current year
A company had three intangible assets at the end of the current year:
Explanation / Answer
1) Acquisition cost for three intangible assets :-
Patent -$ 8,400
Trademark-$7,000
Licensing Right-$52,000
2) Amortisation for the year ended :
Patent - 8,400/14 = $600
Trademark -7,000/10 =$700 .Generally accepted accounting principles, or GAAP, require a business to amortize only intangible assets with definite lives. Because a trademark can be renewed every 10 years with the U.S. Patent and Trademark Office indefinitely, a business typically does not amortize a trademark in its accounting records. However, if a business determines it will no longer use a trademark, it must amortize the cost of the trademark for the remainder of its useful life because its life can now be identified.
Licensing Right -52,000/4 = $13,000
3) In the income statement, the amortisation amount should be debited. That is (600+700+13000)= $14,300.
In the Balance Sheet,the value of the intangible asset should be as follows in the ASSET side :-
Patent = 8400-600 =$7,800
Trademark = 7000-700 = $6,300
Licensing Right = 52000-13000 = $39,000
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