When a patent has a book value of $75,000 on the company's books, the company estimates that the future cash flows from the patent are $45,000. The present value of the expected future cash flows is $30,000. The company should record a journal entry that:
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.
When a patent has a book value of $75,000 on the company's books, the company estimates that the future
- debits Loss on Impairment for $45,000.
- credits Loss on Impairment for $30,000.
- debits Patent for $45,000.
- credits Patent for $30,000.
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