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متابعة

Mizo, Inc., purchased a patent at the beginning of Year 1 for $22,100 that was to be amortized over 17 years.

On July1 of Year8, Mizo incurred legal costs of $11,400 to successfully defend the patent. The amount of amortization expense that Hansen should record for Year8 is ?

A. $2,500

B. $1,971

C. $1,900

D. $1,300

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تم إضافة السؤال من قبل مستخدم محذوف‎
تاريخ النشر: 2015/04/10
Muhammad Ramzan Tufail  ACCA
من قبل Muhammad Ramzan Tufail ACCA , Assistant Finance Manager , Eltizam Asset Management Group

(C) is the Correct Ans.

 

Legal cost Should be amortized. Calculations are as follows:

 

Initial Cost to buy =22,100 /17 =1300 Per Year amortization expense.

For First7 Years =1,300 @7 Years =9,100 

From1st January to30 June =1,300 /2 = 650 (Amortization for six month)

Net Book Value after7.5 Years =22,100 -9,100 -650

                                                         =12,350

So, Add the legal cost with this NBV =12,350 +11,400

                                                                  = 23,750

Now amortized over the remaining period  =23,750 /9.5

                                                                             =2,500 Per Year Amortization

From1st July to31st December =2,500 /2

                                                          =1,250 (For Six Month)

From January01 to June30 =  650

From July01 to December31st =1,250

So the Total for Year8 =1,900

 

مستخدم محذوف‎
من قبل مستخدم محذوف‎

Answer (C) is correct.

Mizo will amortize the cost of the patent on a straight-line basis at the rate of $1,300 per year ($22,100 ÷17). The costs of a successful legal defense of a patent are capitalized and amortized over the shorter of the remaining legal life or the estimated useful life of the patent. Because the legal costs to defend the patent were incurred when the patent had9.5 years of life remaining, they will be amortized at a rate of $1,200 per year ($11,400 ÷9.5). Because Year8 only includes a half year’s depreciation for the legal costs, total amortization expense for that year is$1,900 ($1,300 + $600).