Which of the following will cause a company to show a lower amount of amortization of intangible assets in the rst year after acquisition?
A A higher residual value.
B A higher amortization rate.
C A shorter useful life.
FRA
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Assuming SLM,
Amm = OC – Salvage/N
Higher the salvage, lower the numerator, lower the AMm.
(OC – salvage)/N
The answer is option A. If there is a higher residual value, the amount of intangible asset value to be amortised will be low.
Option B is wrong since higher amortisation rate will lead to high amortization in the 1st year and low in later years.
Option C is wrong since shorter useful life will lead to high amortization.