Question

Red Bear Ltd. purchased several intangible assets, as follows:

	Asset		Purchase Cost		Asset		Purchase Cost
	Licence		$76,000		Patent		$173,000
	Customer list		62,700		Copyright		252,000

The following information is also available:

●		In addition to the costs listed above, there were legal fees of $15,000 associated with the licence acquisitions. The licences are valid in perpetuity, and sales of the products produced under the licences have been strong and are expected to continue at the same level for many decades.
●		The customer lists are expected to be useful for the next six years.
●		The patent has a legal life of 20 years, but technological changes are expected to render it worthless after about 8 years.
●		The copyright is good for another 40 years, but nearly all the related sales are expected to occur during the next 10 years.

a) Calculate the annual amortization expense, if any, that should be recorded for each of these intangible assets, assuming the straight-line method is appropriate. (Do not leave any answer field blank. Enter 0 for amounts.)

	Asset		Annual amortization expense
	Licences			$
	Customer list			$
	Patents			$
	Copyrights			$

b) Show how the intangible assets section of the statement of financial position would be presented four years after acquisition of these assets, assuming that there has been no evidence that their values have been impaired. Assume that a full year of amortization was taken in the year of acquisition.

	Intangible assets, at cost less accumulated amortization
	Copyrights		$
	Patents
	Customer Lists
	Licences
	Total intangible assets		$

Answer 1

Answer:

a).

Asset	Annual amortization expense
Licence	-
Customer list	10,450
Patent	21,625
Copyright	25,200

b).

Asset	Intangile asset less accumulated amortization at the end of the 4th year
Copyright	151,200
Patent	86,500
Customer list	20,900
Licence	91,000
Total intangible assets	349,600

Calculation:

a.

To calculate the annual amortization expense as per straightline method, we need to take the purchase cost and then divide it with the useful life. So, that will be the annual amortization expense.

For the purchase cost of licences, we need to add the purchase cost plus the legal fees

So, Licence = 76,000 + 15,000 = 91,000

The calculation is done below:

Asset	Purchase cost (a)	Useful life (b)	Annual amortization expense (a) / (b)
Licence	91,000	perpetual	-
Customer list	62,700	6	10,450
Patent	173,000	8	21,625
Copyright	252,000	10	25,200
	578,700		57,275

b.

We need to calculate the intangible assets section of the statement of financial position after four years after acquisition of these assets and no impairment. For that, we need to deduct the amortization value for 4 years from the purchase cost.

For licence, there is no amortization as the life is perpetual.

The calculation is done below:

Asset	Purchase cost (a)	Year 1 Amortization (b)	Year 2 Amortization (c)	Year 3 Amortization (d)	Year 4 Amortization (e)	Intangible asset less accumulated amortization at the end of the 4th year (a)-(b)-(c)-(d)-(e)
Licence	$91,000	0	0	0	0	$91,000
Customer list	$62,700	10,450	10,450	10,450	10,450	$20,900
Patent	$173,000	21,625	21,625	21,625	21,625	$86,500
Copyright	$252,000	25,200	25,200	25,200	25,200	$151,200
	$578,700	$57,275	$57,275	$57,275	$57,275	$349,600