Question

Danks Corporation purchased an intangible asset for $675,000 on September 1, 2018. It had a useful life of 10 years. On January 1, 2020, Danks spent an additional $165,000 that needed to be capitalized into the intangible asset account. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2020?

Answer 1

PARTICULARS	AMOUNT($)
YEAR 2018
Purchase price on 1 SEPTEMBER 2018	675,000
amortisation cost from 1 sept 2018 to 31 dec 2018 (675000/10YR*4/12)	(22,500)
Balance as on 31 DECEMBER 2018	652,500
YEAR 2019
Balance as on 1 JAN 2018	652,500
Amortisation cost from 1 jan 2019 to 31 dec 2019(675000/10YR)	(67500)
Balance as on 31 DEC 2019	585,000
YEAR 2020
Balance as on 1 JAN 2020	585,000
Amount to be capitalised on 1 jan 2020	165,000
Total balance on 1 JAN 2020	750,000
Amortisation cost from 1 jan 2020 to 31 dec 2020
on original purchase (585000/5 YR) = 117000
on capital expenditure (165000/5 YR)= 33000	150,000
Balnace as on 31 dec 2020	600,000

amount should be reported for patent amortization expense for 2020 IS $150,000