Danube, Toggle, and ConnectOn rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their 2015 annual reports. Type of Intangible Asset Danube Toggle ConnectOn Developed Technology 3.5 10.0 2.5 Trade Names 2.3 4.6 1.2 Customer Relationships 2.1 6.2 3.1 Assume each company spent $840,000 at the beginning of the current year for additional Developed Technology. Because of its proprietary nature, the technology is estimated to have no residual value at the end of its estimated life. Required: Calculate the impact (direction and amount) that the amortization of such expenditures would have on each company’s Income from Operations in the current year.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Danube, Toggle, and ConnectOn rely on various intangible assets to operate their businesses. These companies amortize the cost of these assets using the straight-line method over the following average estimated useful lives (in years), as reported in their 2015 annual reports.
| Type of Intangible Asset | Danube | Toggle | ConnectOn |
| Developed Technology | 3.5 | 10.0 | 2.5 |
| Trade Names | 2.3 | 4.6 | 1.2 |
| Customer Relationships | 2.1 | 6.2 | 3.1 |
Assume each company spent $840,000 at the beginning of the current year for additional Developed Technology. Because of its proprietary nature, the technology is estimated to have no residual value at the end of its estimated life.
Required:
Calculate the impact (direction and amount) that the amortization of such expenditures would have on each company’s Income from Operations in the current year.
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