Mangrove Company acquired patent right on July 1, 2018 for $ 2,000,000. The asset has a legal life of 15 years but due to the rapidly changing technology management estimates a useful life of only 5 years.
Mangrove Company acquired patent right on July 1, 2018 for $ 2,000,000. The
asset has a legal life of 15 years but due to the rapidly changing technology management estimates a useful life of only 5 years. On January 1, 2019, management is uncertain that the process can actually be made economically feasible, and decides to write down the patent to an estimated market value of $ 600,000. Amortization will be taken three years from this time. On January 1, 2020, after having perfected the related production process, the asset is now appraised at a sound value of $ 2,400,000. Furthermore, the estimated useful life is now believed to have extended by six more years. The company uses the straight-line method of amortization.
Instructions: Compute for the following:
-Amortization expense for 2018.
-Impairment loss to be recognized in 2019
-Patent carrying value at December 31, 2019
-Revaluation surplus recognized in 2020.
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