Accounting Made Simple 24

Question 1

1. INTANGIBLE ASSETS are:

Answer 1

Real, identifiable assets that are not physical objects, such as PATENTS, COPYRIGHTS, and TRADEMARKS.

Question 2

2. How do you depreciate an INTANGIBLE ASSET?

Answer 2

Through a process called AMORTIZATION, in which an INTANGIBLE ASSET’S cost is SPREAD OUT OVER THE ASSET’S USEFUL LIFE.

Question 3

3. Generally, INTANGIBLE ASSETS are AMORTIZED using:

Answer 3

The STRAIGHT LINE METHOD over the SHORTER of the asset’s expected useful life or the asset’s LEGAL LIFE.

Question 4

4. Example: Kurt makes components for wireless routers, and spends 60k obtaining a patent for a new method of production.
   The patent will expire in 20 years, but the USEFUL LIFE OF THE PATENT is expected to be much shorter, given the rapid change in technology. Kurt will AMORTIZE the patent over 4 years, with the following entry each year:

Answer 4

Amort Exp…..15k
Accum Depre…15k

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