Question

Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2014, when it was acquired at a cost of $56 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2018 (before adjusting and closing entries). What is the appropriate patent amortization expense in 2018?

Answer 1

The appropriate patent amortization expense in 2018 is $15.56 Million computed as below:

Purchase Price of Patent	$56 Million
Purchase Year	2014
Initial Estimated Life	9 Years
Number of Years till 2018	4 Years
Amortization till date	$ 24.89 Million	($56 Million/9 years)*4 Years
Unamortized Patent value till 2018	$ 31.11 Million
Remaining Life	2 Years
Amortization for 2018	$ 15.56 Million	($31.11 Million/2 Years)