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Intangible Assets: Amortization for year 5 for a patent

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A company purchases a patent for $900K with an estimated life of 15 years. It is subsequently reduced to 10 years. During year 5, the product for which the patent is held is removed from market.

Does the company book 90,000 in depreciation for year 5? If not, what amount do they book?

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Solution Summary

The solution explains the reasoning for the amortization amount including the calculations. Also discussed is impairment and remaining usefulness of the asset.

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Based on the data given, the problem implies that the patent has no remaining value after the product was removed from the market. We aren't told why it was removed from the market, but it is a safe assumption to say that it can no longer be sold, for whatever reason. Terms of a patent protect the seller from competition in the marketplace. In this ...

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