Freetown Manufacturing company acquired three patents in January 2016. The patents have different lives as indicated in the following schedule. Cost Useful Life Legal Life Patent A 125,000 10 17 Patent B272,500 5 7 Patent C656,200 Indefinite 17 Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2017, the company unsuccessfully attempted to defend its right to Patent B. Legal fees of P127,000 were incurred in this action. The company's policy is to amortize intangible assets by the straight-line method to the nearest half year. The company reports on a calendar-year basis. Required: How much is amortization expense recorded on 12/31/17?___________ How much is the amount of write-down of patent B?_____________ Carrying value of patent A?___________
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.
Freetown Manufacturing company acquired three patents in January 2016. The patents have different lives as indicated in the following schedule.
Cost Useful Life Legal Life
Patent A 125,000 10 17
Patent B272,500 5 7
Patent C656,200 Indefinite 17
Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2017, the company unsuccessfully attempted to defend its right to Patent B. Legal fees of P127,000 were incurred in this action. The company's policy is to amortize intangible assets by the straight-line method to the nearest half year. The company reports on a calendar-year basis.
Required:
- How much is amortization expense recorded on 12/31/17?___________
- How much is the amount of write-down of patent B?_____________
- Carrying value of patent A?___________
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