Question

Question 2:

Defne Gallery purchases the copyright on an oil painting for $360,000 on January 1, 2018. The copyright legally protects its owner for 12 more years. The company plans to market and sell prints of the original for 19 years.

  

Required:

Prepare entries to record the purchase of the copyright on January 1, 2018, and its annual amortization on December 31, 2018.

Answer 1

Journal Entries in the books of Defne Gallery

Date	Particulars	Debit($)	Credit ($)
01/01/2018	Copyright A/c Dr	$3,60,000
	To Cash/ Bank A/c		$3,60,000
	(Being Copyright Purchased and recorded at cost)
12/31/2018	Amortization Expense - Copyright A/c Dr	$30,000
	To Accumulated Amortization- Copyright A/c		$30,000
	(Being amortization of copyright done for the current year)

Notes: Intangible asset like Copyright if acquired should be recorded in the books of account at cost and same has to be amortized over its economic useful life. In this case the economic useful life of copyright is 12 years even though company plans to use it for 19 years. So the copyright has to be amortized over 12 years

Amortization expense per annum= Cost of Acquistion/ Economic Useful life

=$3,60,000/12 years

= $30,000