Determine whether the following intangible assets should be amortized, and determine the length of each asset’s useful life. If the asset should not be amortized, please provide an explanation clarifying this. Asset Should it be amortized? If yes, what is its useful life? If no, please explain why 1) A patent on a new medication with a legal life of 20 years. A patent on a type of manufacturing equipment with a legal life of 20 years. The equipment is expected to be obsolete within 5 years. 3) We purchased the trademarks for Supreme Coffee. 4) We purchased a 15 year Tasty Treats Franchise for the Vaughan territory. 5) We purchased another company for the value of its Owner’s Equity plus Goodwill of $200,000.
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.
- Determine whether the following intangible assets should be amortized, and determine the length of each asset’s useful life.
If the asset should not be amortized, please provide an explanation clarifying this.
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Asset |
Should it be amortized? |
If yes, what is its useful life? |
If no, please explain why |
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1) A patent on a new medication with a legal life of 20 years. |
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A patent on a type of manufacturing equipment with a legal life of 20 years. The equipment is expected to be obsolete within 5 years. |
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3) We purchased the trademarks for Supreme Coffee. |
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4) We purchased a 15 year Tasty Treats Franchise for the Vaughan territory. |
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5) We purchased another company for the value of its Owner’s Equity plus |
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