How much is the amortization expense for the year 2018? 2. What is the patent carrying value at December 31, 2020?
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.
Boston Company acquired a patent right on July 1, 2018 for P1,250,000. The asset has a remaining legal life of 10 years but due to the rapidly changing technology, management estimates a useful life of only five years. On January 1, 2020, management is uncertain that the process can actually be made economically feasible, and decides to write down the patent to an estimated market value of P750,000. Amortization will be taken over three years from that time.
1. How much is the amortization expense for the year 2018?
2. What is the patent carrying value at December 31, 2020?
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