16. On January 1, 2017, Charo Corporation acquires all of the net assets of Ricky Corporation...

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

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Expert Solution

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

ekkarill92 answered 1 year ago

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