Question

The cost of a covenant not to complete for 10 years incurred in connection with the acquisition of a business is amortized over 10 years.

a) True
b) False

Answer 1

The statement that the cost of a covenant not to compete for 10 years is amortized over the 10-year period in the context of business acquisition is true. This is due to IRS regulations treating the covenant as an intangible asset with a useful life equal to its duration. Option a.

Step-by-step explanation:

The cost of a covenant not to compete for 10 years incurred in connection with the acquisition of a business is indeed amortized over the 10-year period. This is true option a. The reason for this is that the Internal Revenue Service (IRS) considers such covenants as intangible assets. Much like depreciation for tangible assets, an intangible asset's cost is amortized over its useful life. Since the covenant restricts competition for a specific duration, that period—10 years in this case—determines the asset's useful life for amortization purposes.