Question

On April 18, 2019, Petros buys all the assets of Brigid's Muffier Shop. Included in the purchase price of $296,000 is a payment of $21,000 to Brigid not to open a competing shop in the state for a period of 5 years. Brigid's assets at the date of sale are as follows: Asset Adjusted basis Fair Market Value Inventory $3,400 $12,000 Equipment 3,700 31,600 Building 80,000 114,000 Patent 800 16,800 Land 5,000 11,000 The patent is on a special muffler that Brigid developed and patented 5 years ago. Petros would like to know the maximum amount of the deduction he will be allowed on the purchase of Brigid's assets for 2019 Refer to the MACRS Depreciation Tables to answer the following question. Note: Do not round any division. Round other computations to the nearest whole dollar. Assume the equipment has a MACRS recovery period of 7 years and that the full election expense is taken in the year of acquisition The maximum amount of the deduction Petros will be a lowed on the purchase of Brigid's assets for 2019 iss

Answer 1

Solution : Pebyos paid $ 296,000 toy assets worth $206,400 (including the $21,000 Covenant not to compete). Because he paid more than the fair market value of the identifiable assets, the $89,600 excess is goodwill and is amorticed over is years. The basis of the identifiable assets is equal to their fain market value. The inventory is not depreciable. The store equipement is 7 years MACRS property is eligible for expensing under Section 179. The building is 39 years MACRS real property. Because the patent is purchased with the other business assets It must be amortized over 15 years even though the Memaining weful life is only 12 years. The covenant not to compare is an intangible asset a must be amortised over the 15 years statutory period. All amortisation periods begins on the date o purchase Because petras bought the asseti af tee the middle of April, he is allowed only 8 months (May through Decembe) a amortisation on the intangible asserts in 2017. Its maximum allowable cost-recovery deduction con the assests for 2 014. are as follows:

Store Equipment i Election to Expense $31,600 Depreciable basis ($31,600 - $31,600):_ 0 Building: Depreciable basis 1st Year depreciation (Table A10-9) x $ 114,000 1.819% 2,074 Amortiçation: Goodwill ($89.600/is) x (8 /12) : 3,982 Patent $ 16,800 / 15 ) x (8) 12) 747 Covenant not to compete ($ 21,000 /15.) (8/12): 933 Total 2019 Depreciation & Amortization Deduction $39,336