In: Accounting
16. On January 1, 2017, Charo Corporation acquires all of the net assets of Ricky Corporation for $1,500,000. The following intangible assets are included in the purchase agreement:
Assets |
Acquisition Cost |
Goodwill and going concern value |
$175,000 |
Licenses |
$ 50,000 |
Patents |
$ 75,000 |
Covenant not to compete for five years |
$150,000 |
What is the total amount of amortization allowed in 2017?
A) $20,000
B) $15,000
C) $30,000
D) $38,000
Ans
The following intangible assets are covered under section 197 of IRS which are eligible for amortization if it is acquired
· The amortization period is 15 years under section 197
Goodwill and going concern value |
Licenses |
Patents |
Covenant not to compete for five years |
Covenant not to compete is treated as intangible even it is for 5 years the amortization period will be 15 years
The asset was acquired in 2016 and total value of intangibl assets are
=$175,000+$50,000+$75,000+$150,000
=$450,000
Per year amortization allowed = total value of intangible assets / amortization period
Where
total value of intangible assets =$450,000
amortization period = 15 years as per section 197
per year amortization = $450,000/15 years
=$30,000
The amount of amortization allowed in 2017 is $30,000