Question

On January 2, 2018, Fran acquires a business from chuck. Among the assets purchased are the following intangibles: a patent with 12 year remaining life, a covenant not to complete for 10 years, and goodwill. Of the pruchase price, $120,000 was paid for the patent and $45,000 for the convenant . The amount of the excess of the purchase price over the identifiable assets was $90,000. What is the amount of the amortization deduction for 2018?

Answer 1

The cost of intangible assets are required to be amortized over their useful life like patent, etc. Whereas goodwill do not have any definite life thus, its value is not subject to any amortization. Instead, it is subject to impairment at the end of each year Based on the prevailing conditions.

In the present case total amount of amortization is :

Amortization of patent .:. .120000/12 =$10000

Amortization of covenant : . $45000/10=$4500

Total amortization for the year = $14500