(1) Timber rights were purchased on a tract of land for $600,000. The timber is estimated at 2,800 cubic metres. During the current year, 180 cubic metres of timber were cut and sold.
Amortisation per cubic metre = $600,000/2,800 = $214.29
So for the current year, amortization expense = 180 x $214.29 = $38,572.22
Dr amortization expense $38,572.22
Cr Accumulated amortization $38,572.22
(2) A company purchased another company on July 1 and recorded goodwill of $400,000
Goodwill from business combinations is not amortized. An impairment test must be carried out annually.
(3) Costs of $18,000 were incurred on January 1 to obtain a patent. Shortly thereafter, $9,000 was spent in legal costs to successfully defend the patent against competitors. The patent has a legal life of 20 years and an estimated 9-year useful life
Since the defence was successful, the legal costs can be capitalised to patents too. Total patents cost $27,000. Patents are amortized over their legal or useful life, whichever is the shorter.
$27,000/9 = $3,000
Dr Patents amortization $3,000
Cr Accumulated amortization $3,000