Question

In January, 2013, Ivanhoe Corporation purchased a patent for a new consumer product for $966000. At the time of purchase, the patent was valid for 15 years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only 10 years. During 2018 the product was determined to be obsolete due to a competitor’s new product. What amount should Ivanhoe charge to expense during 2018, assuming amortization is recorded at the end of each year?

$644,000

$483,000

$96,600

$64,400

Answer 1

Answer

Life of Patent = 10 Years

Cost of patent = $966,000

Amortization per year = Cost of patent / Useful life

= $966,000 / 10 Years

Amortization per year = $96,600

In 2018, the patent got obsolete, so from 2013 to 2017 we must have amortized the patent for 5 Years (2013 to 2017)

Patent amortized from 2013 to 2017 = Amortization per year * 5 Years

= $96,600 * 5 Years

Patent amortized from 2013 to 2017 = $483,000

We should charge the remaining cost of $483,000 ($966,000 – 483,000) in 2018.

Answer = $483,000

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