Question

A purchased patent has a remaining legal life of 15 years. It should be

A. Expensed in the year of acquisition.
B.Amortized over 15 years regardless of its useful life.
C.Amortized over its useful life if less than 15 years.
D.Amortized over 40 years.

Answer 1

A purchased patent with a remaining legal life of 15 years should be amortized over its useful life if this is less than 15 years, not over the full legal life or any other arbitrary period.

Step-by-step explanation:

The amortization of a purchased patent depends on its remaining legal life and the period of its anticipated useful life. The correct treatment, as per accounting standards, is option C: the patent should be amortized over its useful life if that life is less than 15 years. Thus, if the remaining legal life of a patent is 15 years but the useful life (the period during which it is expected to generate economic benefits for the entity) is estimated to be less, say 10 years, then the amortization period should be the shorter, 10-year period. If the useful life is longer than the legal life, the amortization should still not exceed the legal life.