[HushedChoas]

Northstar Co. acquired a registered trademark for $600,000. The trademark has a remaining legal life of five years, but can be renewed every 10 years for a nominal fee. Northstar expects to renew the trademark indefinitely. What amount of amortization expense should Northstar record for the trademark in the current year?
a. $120,000
b. $15,000
c. $0
d. $40,000

CORRECT ANSWER: C
MY ANSWER: A

***I was under the impression that typically you account for things when they happen regardless of expectation, and adjust if the expectation is correct.

Can you explain why in this case you would follow the expectation instead of adjusting once renewed?

“Recipe for Success: Study while others are sleeping; work while others are loafing; prepare while others are playing; and dream while others are wishing.”  -William A. Ward

[FARISFUN]

You can't amortize something if it has an indefinite life. You can only amortize it if it has a finite life.

[HushedChoas]

But isn't the fact that the it's indefinite dependent on the renewal, which is only an expectation/assumption, but not a guarantee?

“Recipe for Success: Study while others are sleeping; work while others are loafing; prepare while others are playing; and dream while others are wishing.”  -William A. Ward

[vodrldnr]

pay attention to all the exceptions !

it says ” Northstar expects to renew the trademark indefinitely”

we cannot amortize a intangible asset with indefinite life.

acquisition cost – salvage / useful life

if the useful life is infinite number, we cannot even the calculate the formula !

It ain't About How Hard You Hit

[HushedChoas]

I understand how the indefinite life works, however I do not understand the concept of why it is okay to go along with the expectation rather than document real-life activities (aka documenting the renewal).

Does anyone know why this is? Is there a rule somewhere saying to use expectations? I'm confused…

“Recipe for Success: Study while others are sleeping; work while others are loafing; prepare while others are playing; and dream while others are wishing.”  -William A. Ward

[vodrldnr]

@HushedChaos, the qualitative information. the information on F/s shall have the relevance and faithful representation. especially for this topic, the management has the plan ( willingness and ability to renew trademark), therefore, the plan should be reflected on the company's F/S

source: SFAC5

It ain't About How Hard You Hit

[HushedChoas]

Okay, awesome- Thanks for the explanation!

“Recipe for Success: Study while others are sleeping; work while others are loafing; prepare while others are playing; and dream while others are wishing.”  -William A. Ward

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