Reference no: EM132757459

Vale Company acquired patent right on July 1, 2018 for $2,000,000. The asset has a legal life of 15 years but due to the rapidly changing technology management estimates a useful life of only 5 years. On January 1, 2019, management is uncertain that the process can actually be made economically feasible, and decides to write down the patent to an estimated market value of $600,000. Amortization will be taken three years from this time. On January 1, 2020, after having perfected the related production process, the asset is now appraised at a sound value of $2,400,000. Furthermore, the estimated useful life is now believed to have extended by six more years. The company uses the straight-line method of amortization.

Problem 1: Compute for the following:

1. Amortization expense for 2018.
2. Impairment loss to be recognized in 2019
3. Patent carrying value at December 31, 2019
4. Revaluation surplus recognized in 2020.