Question

1. Part a. Google acquired the assets of a small company on May 1, 2020 for $20 million where $3 million of it was ultimately allocated to the tax basis of a patent the small company had held. At the date of purchase, the patent had a remaining life (until the patent’s expiration date) of exactly 5 years (60 months). What was the total amount of amortization that Google can recognize in 2020 for the patent?

Part b.

Would your answer to part a. change if Google had instead directly purchased the patent alone from the company for $3 million instead of purchasing it along with the rest of the assets of the small company for a single purchase price? If so, what is the appropriate amortization for 2020 in this alternative scenario? If not, why doesn’t the amortization amount change?  

Answer 1

part a.amortisation of expense relating to patents;

IN CASE OF ASSESTS ARE BOUGHT ON WHOLE ASSESTS BASIS THE COST SHOULD BE ALLOCATED ON THE RESONABLE BASIS .IN THE PRESENT SCENARIO THE COST IS ALLOCATED BASED ON THE TAX BASIS.

calculation of amortisation ext for the year=cost of the assest/no.of remaining life years

amortisation exp of patents relating to current year=3M/5YERAS

=0.6M

PART B.HERE WE CAN CALCULATE DIRECTLY THE

amortisation exp of patents relating to current year=3M/5YERAS

= =0.6M

HERE AMORTISATION DOESNT CHANGE DUE TO THE AMOUNT ALLOCATED IN PART A AND AMOUNT DORECTLY PURCHASE IN PART B ARE SAME AMOUNT .SO THAT AMORTISATION EXPENSE IS SAME BOTH THE CASES.