Question

On June 28 Lexicon Corporation acquired 100% of the common stock of Gulf & Eastern. The purchase price allocation included the following items: $5.5 million, patent; $4.5 million, developed technology; $3.5 million, inprocess research and development; $6.5 million, goodwill. Lexicon’s policy is to amortize intangible assets using the straight-line method, no residual value, and a five-year useful life.

What is the total amount of expenses (ignoring taxes) that would appear in Lexicon’s income statement for the year ended December 31 related to these items? (Enter your answers in whole dollars.)

Amortization expense in current (partial) year Cost Select 5,500,000 4,500,000 In-process research and development 3,500,000 6,500,000 Developed technology Total amortization expense - current year 0

Answer 1

i. Considering the time gap between June 28 and December 31, it is 187 days. So it is amortized for 187 days.

ii. In process research and development cannot be amortized untill it gets capitalized as per AS- 26.

Following is the table shows the expenditure for the current year.

Particulars	Cost	Years	Current period days	Amortization expenses
Patent	55,00,000	5	187	5,60,548
Developed Technology	45,00,000	5	187	4,58,630
Good will	65,00,000	5	187	6,62,466