Accounting – 6.5 Limitations of accounting statements | e-Consult
6.5 Limitations of accounting statements (1 questions)
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XYZ Company should record the patent in its financial statements at its historic cost of £10,000.
Year of Purchase (1st July 2022):
Debit: Patent (Fixed Asset) £10,000
Credit: Cash/Bank £10,000
Subsequent Years (Each year for 10 years):
Patents are typically amortized (expensed) over their useful life. The amortization expense is calculated evenly over the 10-year period. The annual amortization expense would be £10,000 / 10 years = £1,000.
| Cell | |
| Account Name | Amount |
| Cell |
| Yearly Amortization Entry |
| Cell | |
| Debit | Credit |
| Cell | |
| Amortization Expense | Accumulated Amortization |
| Cell | |
| £1,000 | £10,000 |
The accounting entry each year would be:
- Debit: Amortization Expense £1,000
- Credit: Accumulated Amortization £1,000