A company acquires a patent for $50,000. The patent has a remaining legal life of 15 years, but the company expects the technology to be obsolete in 5 years. What is the amortization expense for the first year?

Answer options:

$3,333

$10,000

$50,000

How to approach this question

Amortization Period = Shorter of Legal Life or Economic/Useful Life.

Full Answer

B.$10,000✓ Correct

Intangible assets are amortized over their useful economic life, which is the shorter of the legal life or the expected period of use. 5 years < 15 years. $50,000 / 5 = $10,000.

Common mistakes

Using legal life blindly.

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