A financial analyst is analyzing the amortization of a product patent acquired by MAKETTIS.p.A., an Italian corporation. He gathers the following information about the patent:Acquisition cost €5,800,000Acquisition date 1 January 2009Patent expiration date 31 December 2015Total plant capacity of patented product 40,000 units per yearProduction of patented product in fi scal year ended 31 December 2009 20,000 unitsExpected production of patented product during life of the patent 175,000 unitsIf the analyst uses the units-of-production method, the amortization expense on the patent for fiscal year 2009 is closest to:A. €414,286.B. €662,857.C. €828,571.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A financial analyst is analyzing the amortization of a product patent acquired by MAKETTI
S.p.A., an Italian corporation. He gathers the following information about the patent:
Acquisition cost €5,800,000
Acquisition date 1 January 2009
Patent expiration date 31 December 2015
Total plant capacity of patented product 40,000 units per year
Production of patented product in fi scal year ended 31 December 2009 20,000 units
Expected production of patented product during life of the patent 175,000 units
If the analyst uses the units-of-production method, the amortization expense on the patent for fiscal year 2009 is closest to:
A. €414,286.
B. €662,857.
C. €828,571.
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