Question

On January 4, 2016, Franc Company purchased for $30,000 a patent that had been filed 8 years earlier. The patent covers a manufacturing process that the company plans to use for 15 years. On January 3, 2017, the company paid its lawyers $11,000 for successfully defending the patent in a lawsuit.

Required:
How to calculate amotization?

Answer 1

Patent amortization expense during 2016 = $30,000 / 15 = $2,000

During 2017, the patent's value increases by $11,000 to $39,000.

Legal costs must be capitalized, that is why the patent's carrying value increases.

Patent amortization expense during 2017 = $39,000 / 14 = $2,785.71