On January 1, Year 1, Lowing Company acquired a patent from Generics Research Co
ID: 2527258 • Letter: O
Question
On January 1, Year 1, Lowing Company acquired a patent from Generics Research Corporation for $3 million. The legal life of the patent is 20 years, but Lowing expects to use it for 5 years. Pawson Company has committed to purchase the patent from Lowing for $500,000 at the end of that 5-year period. Lowing uses the straight-line method to amortize intangible assets with finite useful lives. What is the amount of amortization expense each year? NOTE: It is not $600,000.
Amortization Expense ????????Explanation / Answer
Cost of Intanible Asset = 3,000,000
Estimated useful life as per the reuirement of aquirer = 5 years
Estimated salvage Value at the end of useful life = 500,000
Amortisation as per SLM = (3,000,000 - 500,000) / 5 = $ 500,000 per year