Question

Application Problem 8-16A a-b Red Bear Ltd. purchased several intangible assets, as follows: Asset Asset Purchase Cost $79,000 62,700 Purchase Cost $157,000 280,000 Licence Customer list Patent Copyright The following information is also available: . • • • In addition to the costs listed above, there were legal fees of $10,800 associated with the licence acquisitions. The licences are valid in perpetuity, and sales of the products produced under the licences have been strong and are expected to continue at the same level for many decades. The customer lists are expected to be useful for the next six years. The patent has a legal life of 20 years, but technological changes are expected to render it worthless after about 8 years. The copyright is good for another 40 years, but nearly all the related sales are expected to occur during the next 10 years.

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Answer 1

Straight Line Amortisation = Cost/useful life Ans 1 Asset Purchase cost Useful life Annual Amortisation Expense $0 Licence $89,800 perpetuity Customer List $62,700 $10,450 [$62700/6] Patent $1,57,000 8 $19,625 ($157000/8] Copyrights $2,80,000 $28,000 ($280000/10] Note: No Amortisation is provided on licence as it can be used for perpetuity In Patent useful life is considered and not the leagl life 10 Ans 2 Asset Purchase cost Intangible Assets less Year 1 Year 2 Year 3 Year 4 accumulated Amortisation Amortisation Amortisation Amortisation amortisation at the end of 4th year (A) (B) (C) (D) (E) (A) - (B) (C) (D) - (E) $0 $0 $0 Licence Customer List Patent Copyrights Total Intangible Assets $89,800 $62,700 $1,57,000 $2,80,000 $5,89,500 $10,450 $19,625 $28,000 $58,075 $10,450 $19,625 $28,000 $58,075 $10,450 $19,625 $28,000 $58,075 $0 $10,450 $19,625 $28,000 $58,075 $89,800 $20,900 $78,500 $1,68,000 $3,57,200