On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a fiv

Question

On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a five-year contract. At the end of the five years, the franchise right reverts back to the seller. On September 1, 2020, Tabitha decides to sell the franchise right for $323,000. The company amortizes intangible assets using the straight-line method and records partial-year amortization based on the number of months in service. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?

Explanation / Answer

a Cost        5,60,000 b life 5 years c=a/b Amortisation per year        1,12,000 d=c/12 Amortisation per month 9,333.3333 e Number of months passed from Jun 2018 to Aug 2020 27 f=d*e Patent amortised 2,52,000.00 g= a-f Book value of patent on date of sale        3,08,000 h Sale proceeds 3,23,000 i= h-g Gain 15,000.00

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