CANADA DRY - Part 1 of 5

On July 1, 2024, Canada Dry acquired a copyright for $100,000. The copyright is legally protected for 50 years, but due to rapid changes in digital media and content consumption, management estimates the economic life of the copyright to be 6 years. In connection with the acquisition, Canada Dry also paid $8,000 in registration fees and incurred $12,000 in legal fees to successfully defend the copyright against an infringement claim.

Do not add commas, million or $ in your answers.

What is the acquisition cost of the copyright?

Question

CANADA DRY - Part 1 of 5

On July 1, 2024, Canada Dry acquired a copyright for $100,000. The copyright is legally protected for 50 years, but due to rapid changes in digital media and content consumption, management estimates the economic life of the copyright to be 6 years. In connection with the acquisition, Canada Dry also paid $8,000 in registration fees and incurred $12,000 in legal fees to successfully defend the copyright against an infringement claim.

Do not add commas, million or $ in your answers.

What is the acquisition cost of the copyright?

BlackTom AI · Accepted Answer

We start by restating the core question: On July 1, 2024, Canada Dry acquired a copyright for 100000, with a legally protected life of 50 years, but management expects an economic life of 6 years. Additional costs: 8000 registration fees and 12000 legal fees to defend against an infringement claim. The task is to determine the acquisition cost of the copyright, excluding any commas or dollar signs in the numeric answer.

First, consider what costs are included in the acquisition cost of an intangible asset like a copyright. Generally, the acquisition cost comprises all expenditures necessary to obtain the asset and ready it for its intended use. This typically includes the purchase price and costs to secure legal rights or protect the asset that are directly attributable to acquiring the asset.

Next, evaluate each component:
- Purchase price: This is the amount paid to acquire the copyright and is clearly included in the acquisition cost. In this case, 100000.
- Registration fees: These are costs incurred to register the asset and obtain legal protection. Such fees are typically capitalized as part of the asset's cost because they are directly attributable to bringing the asset to its current condition and location for use. Here, 8000 should be included.
- Legal fees to defend against an infringement claim: If these fees were incurred to successfully defend and perfect the title or to defend the asset rights, they are generally capitalized as part of the asset cost. The intuition is that defending the asset protects the value of the asset and contributes to bringing it into a usable state. In this scenario, 12000 is included.

Then, perform the aggregation: add the purchase price, registration fees, and defensive legal costs together to arrive at the total acquisition cost.

If we were to do the arithmetic step by step: start with the base price 100000, add the registration fees 8000, and add the defense-related legal fees 12000. The sum reflects all directly attributable costs necessary to obtain and protect the copyright for use.

Thus, the calculation comprises these components and their total reflects the acquisition cost that would be capitalized on the balance sheet for the intangible asset.

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