The following is an excerpt from Accounting Made Simple:
Accounting Explained in 100 Pages or Less. Intangible assets are
real, identifiable assets that are not physical objects. Common
intangible assets include patents, copyrights, and trademarks.
Amortization is the process—very analogous to depreciation—in
which an intangible asset’s cost is spread out over the asset’s
life. Generally, intangible assets are amortized using the
straight-line method over the shorter of: - The asset’s expected
useful life, or - The asset’s legal life. Example: Kurt runs a
business making components for wireless routers. In 2008, he
spends $60,000 obtaining a patent for a new method of production
that he has recently developed. The patent will expire in 2022.
Even though the patent’s legal life is 14 years, its useful life
is likely to be much shorter, as it’s a near certainty that this
method will become obsolete in well under 14 years, given the
rapid rate of innovation in the technology industry. As such,
Kurt will amortize