The remaining useful life of the patent at the end of 2015 is 7 years (2023 - 2015 = 7 years). Since the economic benefits of the patent are now estimated to last only 6 years from the date of acquisition, the remaining amortization period should be adjusted to reflect this new estimate.
The annual amortization expense can be calculated as follows:
Original Cost of Patent / Remaining Legal Life = Annual Amortization Expense
$1,500,000 / 10 years = $150,000 per year
Since the economic benefits are now estimated to last only 6 years, the remaining amortization expense over the next 2 years (2016 and 2017) should be:
$150,000 x 2 years = $300,000
The carrying amount of the patent at December 31, 2015, net of accumulated amortization, can be calculated as follows:
Original Cost of Patent - Accumulated Amortization = Carrying Amount
$1,500,000 - ($150,000 x 2) = $1,200,000
Therefore, the amount to be reported in the statement of financial position for the patent, net of accumulated amortization, at December 31, 2015, is $1,200,000.
Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2013. The
patent is being amortized over its remaining legal life of 10 years, expiring on January 1,
2023. During 2015, Palmiero determined that the economic benefits of the patent would
not last longer than 6 years from the date of acquisition. What amount should be reported
in the statement of financial position for the patent, net of accumulated amortization, at
December 31, 2015?
3 answers
Wolaita Sodo University
College of Business and Economics
Department of Accounting and Finance
Fundamentals Accounting II Group Assignment I (5 students in one group)
1. Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2013. The
patent is being amortized over its remaining legal life of 10 years, expiring on January 1,
2023. During 2015, Palmiero determined that the economic benefits of the patent would
not last longer than 6 years from the date of acquisition. What amount should be reported
in the statement of financial position for the patent, net of accumulated amortization, at
December 31, 2015?
2. In 2022, Jackie Chan Corporation developed a new product that will be marketed in
2024. In connection with the development of this product, the following costs were
incurred in 2023: research and development costs ¥40,000,000; materials and supplies
consumed ¥6,000,000; and compensation paid to research consultants ¥12,500,000.
(¥23,000,000 of the development phase costs were incurred after the product became
economically viable.) It is anticipated that these costs will be recovered in 2026. What is
the amount of research and development costs that Chan should record in 2023 as a
charge to expense?
3. Lerch SE has a patent on how to extract oil from shale rock, with a carrying value of
€5,000,000 at the end of 2018. Unfortunately, several recent non-shale-oil discoveries
adversely affected the demand for shale-oil technology, indicating that the patent is
impaired. Lerch determines the recoverable amount for the patent, based on value-in-use
(because there is no active market for the patent). Lerch estimates the patent’s value-in�use at €2,000,000, based on the discounted expected net future cash flows at its market
rate of interest. Required: Calculate the impairment loss?
4. Arcon Radio purchased a broadcast license for €2,000,000. The license is renewable
every 10 years. Arcon Radio has renewed the license with the GCC twice, at a minimal
cost. Because it expects cash flows to last indefinitely, Arcon reports the license as an
indefinite-life intangible asset. Recently, the GCC decided to auction these licenses to the
highest bidder instead of renewing them. Based on recent auctions of similar licenses,
Arcon Radio estimates the fair value less costs to sell (the recoverable amount) of its
license to be €1,500,000. Required: Calculate the impairment loss?
College of Business and Economics
Department of Accounting and Finance
Fundamentals Accounting II Group Assignment I (5 students in one group)
1. Palmiero purchased a patent from Vania Co. for $1,500,000 on January 1, 2013. The
patent is being amortized over its remaining legal life of 10 years, expiring on January 1,
2023. During 2015, Palmiero determined that the economic benefits of the patent would
not last longer than 6 years from the date of acquisition. What amount should be reported
in the statement of financial position for the patent, net of accumulated amortization, at
December 31, 2015?
2. In 2022, Jackie Chan Corporation developed a new product that will be marketed in
2024. In connection with the development of this product, the following costs were
incurred in 2023: research and development costs ¥40,000,000; materials and supplies
consumed ¥6,000,000; and compensation paid to research consultants ¥12,500,000.
(¥23,000,000 of the development phase costs were incurred after the product became
economically viable.) It is anticipated that these costs will be recovered in 2026. What is
the amount of research and development costs that Chan should record in 2023 as a
charge to expense?
3. Lerch SE has a patent on how to extract oil from shale rock, with a carrying value of
€5,000,000 at the end of 2018. Unfortunately, several recent non-shale-oil discoveries
adversely affected the demand for shale-oil technology, indicating that the patent is
impaired. Lerch determines the recoverable amount for the patent, based on value-in-use
(because there is no active market for the patent). Lerch estimates the patent’s value-in�use at €2,000,000, based on the discounted expected net future cash flows at its market
rate of interest. Required: Calculate the impairment loss?
4. Arcon Radio purchased a broadcast license for €2,000,000. The license is renewable
every 10 years. Arcon Radio has renewed the license with the GCC twice, at a minimal
cost. Because it expects cash flows to last indefinitely, Arcon reports the license as an
indefinite-life intangible asset. Recently, the GCC decided to auction these licenses to the
highest bidder instead of renewing them. Based on recent auctions of similar licenses,
Arcon Radio estimates the fair value less costs to sell (the recoverable amount) of its
license to be €1,500,000. Required: Calculate the impairment loss?
1. The carrying amount of the patent at December 31, 2015, should be adjusted to reflect the new estimate that the economic benefits would last only 6 years from the date of acquisition. The original cost of the patent is $1,500,000 and it is being amortized over 10 years.
Annual amortization expense = $1,500,000 / 10 = $150,000 per year
For 2015, 3 years have passed since the acquisition of the patent. Therefore, the accumulated amortization at the end of 2015 would be:
Accumulated amortization = 3 years x $150,000/year = $450,000
The carrying amount of the patent at December 31, 2015, net of accumulated amortization, would be:
$1,500,000 - $450,000 = $1,050,000
2. The research and development costs that should be recorded in 2023 as a charge to expense are those costs that were incurred during the development phase after the product became economically viable. These costs include materials and supplies consumed, and compensation paid to research consultants. Therefore, the amount to be recorded as an expense in 2023 would be:
¥6,000,000 (materials and supplies consumed) + ¥12,500,000 (compensation paid to research consultants) = ¥18,500,000
3. The impairment loss for Lerch SE's patent can be calculated as the difference between the carrying value of the patent (€5,000,000) and its recoverable amount based on value-in-use (€2,000,000):
Impairment loss = €5,000,000 - €2,000,000 = €3,000,000
4. The impairment loss for Arcon Radio's broadcast license can be calculated as the difference between the carrying value of the license (€2,000,000) and its recoverable amount based on the fair value less costs to sell (€1,500,000):
Impairment loss = €2,000,000 - €1,500,000 = €500,000
Annual amortization expense = $1,500,000 / 10 = $150,000 per year
For 2015, 3 years have passed since the acquisition of the patent. Therefore, the accumulated amortization at the end of 2015 would be:
Accumulated amortization = 3 years x $150,000/year = $450,000
The carrying amount of the patent at December 31, 2015, net of accumulated amortization, would be:
$1,500,000 - $450,000 = $1,050,000
2. The research and development costs that should be recorded in 2023 as a charge to expense are those costs that were incurred during the development phase after the product became economically viable. These costs include materials and supplies consumed, and compensation paid to research consultants. Therefore, the amount to be recorded as an expense in 2023 would be:
¥6,000,000 (materials and supplies consumed) + ¥12,500,000 (compensation paid to research consultants) = ¥18,500,000
3. The impairment loss for Lerch SE's patent can be calculated as the difference between the carrying value of the patent (€5,000,000) and its recoverable amount based on value-in-use (€2,000,000):
Impairment loss = €5,000,000 - €2,000,000 = €3,000,000
4. The impairment loss for Arcon Radio's broadcast license can be calculated as the difference between the carrying value of the license (€2,000,000) and its recoverable amount based on the fair value less costs to sell (€1,500,000):
Impairment loss = €2,000,000 - €1,500,000 = €500,000
1 answer