Question

Please provide your classmates with information about patents and whether or not they should be amortized and over what time period. Also, please provide an explanation of goodwill and let your classmates know whether or not it should be amortized.

Answer 1

Patents give the organisation the sole right to produce or manufacture a specific product. They run for a determined and pre-defined period of time before expiring and allowing the competitors to enter the marketplace. Patents should be amortized evenly over the entire life of the patent. Recording the initial patent cost on the company's general account until it reaches ledger as an asset. Book an entry each year for amortization expense that reduces the asset zero.

For example, if the company has a patent that expires in 20 years, but is only anticipated to be profitable for 10 of those years, the amortization period should be 10 years.

Goodwill is an intangible asset in connection with or associated with the acquisition or purchase of one company by another. In fact goodwill is recorded in a situation in which the purchase price is greater than the sum of the fair value of all identifiable tangible and intangible assets purchased in the acquisition and the liabilities assumed in the process.

Per the Financial Accounting Standards Board (FASB) Statement 142, Accounting for Goodwill and Intangible Assets, it clearly states that goodwill is no longer allowed to be amortized. In accounting, goodwill is accrued when an organization pays more for an asset than its fair value, based on the various factors like the company's brand, client base, or other factors.