On September 1, 2015, Johnas, Inc. acquired a patent for $600,000. The patent has 16 years remaining in its legal life. However, Johnas, Inc. expects the patent's technology to have a useful life of 8 years. Prepare the journal entries to record the acquisition of the patent and the amortization expense for 2015 Date Account Debit Credit
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.
Patents are intangible assets acquired as a right to use any formula, method or process.
These are required to be depreciated throughout it's useful life. Thus is called Amortization.
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