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Accounting for Intangible Assets

Accounting for Intangible Assets - Accounting for...

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Accounting for Intangible Assets Companies record intangible assets at cost. Intangibles are categorized as having either a limited life or an indefinite life. If an intangible has a limited life , the company allocates its cost over the asset's useful life using a process similar to depreciation. The process of allocating to expense the cost of intangibles is referred to as amortization . The cost of intangible assets with indefinite lives should not be amortized . To record amortization of an intangible asset, a company increases (debits) Amortization Expense, and decreases (credits) the specific intangible asset. (Unlike depreciation, no contra account, such as Accumulated Amortization, is usually used.) Intangible assets are typically amortized on a straight-line basis. For example, the legal life of a patent is 20 years. Companies amortize the cost of a patent over its 20-year life or its useful life, whichever is shorter. To illustrate the computation of patent amortization, assume that National Labs purchases a patent at a cost of $60,000 on June 30. If National estimates the useful
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