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14 ABG bought a patent for €6,145. The patent is legally protected for a period of 10 years during which it is expected to generate a net cash flow of €1,000 per year. ABG has agreed with KLM to sell the patent at the beginning of the 8th year at its fair value. How will the amount of €6,145 be recognised and how will it be treated after initial recognition (the market interest rate is 10%)?What would differentiate your answer if ABG purchased the patent for (a) €7,000, (b) €5,000?

14 ABG bought a patent for €6,145. The patent is legally protected for a period of 10 years during which it is expected to generate a net cash flow of €1,000 per year. ABG has agreed with KLM to sell the patent at the beginning of the 8th year at its fair value. How will the amount of €6,145 be recognised and how will it be treated after initial recognition (the market interest rate is 10%)?What would differentiate your answer if ABG purchased the patent for (a) €7,000, (b) €5,000?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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14 ABG bought a patent for €6,145. The patent is legally protected for a period of 10 years during which it is expected to generate a net cash flow of €1,000 per year. ABG has agreed with KLM to sell the patent at the beginning of the 8th year at its fair value. How will the amount of €6,145 be recognised and how will it be treated after initial recognition (the market interest rate is 10%)?
What would differentiate your answer if ABG purchased the patent for (a) €7,000, (b) €5,000?

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