A company acquires a patent with an expiration date in six years for ¥100 million. The company assumes that the patent will generate economic benefits that will decline over time and decides to amortize the patent using the double-declining balance method. The annual amortization expense in Year 4 is closest to:
- ¥6.6 million.
- ¥9.9 million.
- ¥19.8 million.
B is correct. As shown in the following calculations, under the double-declining balance method, the annual amortization expense in Year 4 is closest to ¥9.9 million.
Annual amortization expense = 2 × Straight-line amortization rate × Net book value.
Amortization expense Year 4 = 33.3% × ¥29.6 million = ¥9.9 million.
I dont really understand the calculation. How did they come up with the NBV of 29.6 million? Thank you