16 . On January 1, 2017, Charo Corporation acquires all of the net assets of Ric
ID: 2535454 • Letter: 1
Question
16. On January 1, 2017, Charo Corporation acquires all of the net assets of Ricky Corporation for $1,500,000. The following intangible assets are included in the purchase agreement:
Assets
Acquisition Cost
Goodwill and going concern value
$175,000
Licenses
$ 50,000
Patents
$ 75,000
Covenant not to compete for five years
$150,000
What is the total amount of amortization allowed in 2017?
A) $20,000
B) $15,000
C) $30,000
D) $38,000
Assets
Acquisition Cost
Goodwill and going concern value
$175,000
Licenses
$ 50,000
Patents
$ 75,000
Covenant not to compete for five years
$150,000
Explanation / Answer
Ans
The following intangible assets are covered under section 197 of IRS which are eligible for amortization if it is acquired
· The amortization period is 15 years under section 197
Goodwill and going concern value
Licenses
Patents
Covenant not to compete for five years
Covenant not to compete is treated as intangible even it is for 5 years the amortization period will be 15 years
The asset was acquired in 2016 and total value of intangibl assets are
=$175,000+$50,000+$75,000+$150,000
=$450,000
Per year amortization allowed = total value of intangible assets / amortization period
Where
total value of intangible assets =$450,000
amortization period = 15 years as per section 197
per year amortization = $450,000/15 years
=$30,000
The amount of amortization allowed in 2017 is $30,000
Goodwill and going concern value
Licenses
Patents
Covenant not to compete for five years
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.