Journal Entry for Amortization of Intangible Assets

Amortization of intangible assets refers to the systematic allocation of the cost of an intangible asset over its useful life. Below is an example of how to record the amortization of an intangible asset.

Scenario:

A company acquires a patent for ₹120,000 with a useful life of 10 years. The annual amortization expense would be:

$\text{Annual Amortization Expense} = \frac{\text{Cost of Patent}}{\text{Useful Life}} = \frac{₹120,000}{10} = ₹12,000$

1. Recording Annual Amortization Expense

Date	Particulars	Debit (₹)	Credit (₹)
2024-12-31	Amortization Expense - Patent A/c	12,000
	To Accumulated Amortization - Patent A/c		12,000
	(Being annual amortization of the patent)

Explanation:

1. Amortization Expense - Patent A/c is debited to recognize the expense for the period.
2. Accumulated Amortization - Patent A/c is credited to record the accumulated amortization, which reduces the carrying value of the patent on the balance sheet.

Adjusting Entry for Multiple Years

If the patent has been in use for several years, the accumulated amortization would be the sum of the annual amortization expenses over those years. For example, if the patent has been used for 3 years:

$\text{Total Accumulated Amortization} = \text{Annual Amortization Expense} \times \text{Number of Years} = ₹12,000 \times 3 = ₹36,000$

The accumulated amortization after 3 years would be ₹36,000, which would be reflected as follows:

Date	Particulars	Debit (₹)	Credit (₹)
2027-12-31	Amortization Expense - Patent A/c	36,000
	To Accumulated Amortization - Patent A/c		36,000
	(Being amortization accumulated over 3 years)

Example of Amortization for a Trademark

A company acquires a trademark for ₹300,000 with a useful life of 15 years. The annual amortization expense would be:

$\text{Annual Amortization Expense} = \frac{\text{Cost of Trademark}}{\text{Useful Life}} = \frac{₹300,000}{15} = ₹20,000$

1. Recording Annual Amortization Expense

Date	Particulars	Debit (₹)	Credit (₹)
2024-12-31	Amortization Expense - Trademark A/c	20,000
	To Accumulated Amortization - Trademark A/c		20,000
	(Being annual amortization of the trademark)