How much is the loss from the patent obsolescence?
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.
Dragon Fruit Trading spent P1,440,000 in acquiring a patent on January 3, 2012. Due to the competitive nature of the product, the patent was estimated to have a useful life of 10 years. At the beginning of 2016, the company paid P180,000 for legal fees in a successful defense of the patent. On July 1, 2020, a competitor obtained rights to a patent which made Dragon Fruit’s patent obsolete. How much is the loss from the patent obsolescence?
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