Journalizing Entries for Amortization

Learning Outcomes

  • Record amortization of intangible assets

By now, you should be able to predict what the journal entry for amortization will look like.

Let’s look at an example. A patent is a right granted by the federal government. This exclusive right enables the owner to manufacture, sell, lease, or otherwise benefit from an invention for a limited period. The value of a patent lies in its ability to produce revenue. Patents have a legal life of 14–20 years.

When purchasing a patent, a company records it in the Patents account at cost. The firm also debits the Patents account for the cost of the first successful defense of the patent in lawsuits (assuming an outside law firm was hired rather than using internal legal staff). Such a lawsuit establishes the validity of the patent and thereby increases its service potential. In addition, the firm debits the cost of any competing patents purchased to ensure the revenue-generating capability of its own patent to the Patents account.

The firm would amortize the cost of a purchased patent over its finite life which reasonably would not exceed its legal life. If a patent cost $40,000 and has a useful life of 10 years, the journal entries to record the patent and periodic amortization (assuming a full year) are:

Date Description Post. Ref. Debit Credit
Mar. 1 Patent $40,000.00
Mar. 1       Checking accounting $40,000.00
Mar. 1 To record purchases of patent.


Date Description Post. Ref. Debit Credit
May 15 Amortization expense $4,000.00
May 15       Patents $4,000.00
May 15 To record annual patent amortization.

Notice that we don’t always use a contra account to record amortization of intangibles; however, if we look at the second half of Albemarle’s Note 12 on goodwill and intangibles, we see the company does keep track of amortization separately. Because they are reporting it in the annual report, we can assume they are using separate GL accounts for the accumulated amortization.

Other intangibles consist of the following at December 31, 2019 and 2018 (in thousands)
Customer Lists and Relationships Trade Names and Trademarks [a] Patents and Technology Other Total
Subcategory, Gross Asset Value
Balance at December 31, 2017 $ 439,312 $18,981 $61,618 $37,256 $557,167
      Foreign currency translation adjustments and other (10,940) (528) (5,817) 6,452 (9,483)
Balance at December 31, 2018 Single Line428,372 Single Line18,453 Single Line55,801 Single Line43,708 Single Line546,334
      Foreign currency translation adjustments and other (5,910) (366) (781) (2,426) (9,483)
Balance at December 31, 2019 Single Line$422,462Double Line Single Line$18,087Double Line Single Line$55,020Double Line Single Line$41,282Double Line Single Line$536,851Double Line
Subcategory, Accumulated Amortization
Balance at December 31, 2017 $(74,704) $(8,295) $(35,203) $(17,462) $(135,664)
      Amortization (23,402) (1,450) (3,127) (27,979)
      Foreign currency translation adjustments and other 2,309 119 1,405 (381) 3,452
Balance at December 31, 2018 Single Line(95,797) Single Line(8,176) Single Line(35,248) Single Line(20,970) Single Line(160,191)
      Amortization (23,020) (1,388) (2,714) (27,122)
      Foreign currency translation adjustments and other 2,068 238 439 2,339 5,084
Balance at December 31, 2019 Single Line$(116,749)Double Line Single Line$(7,938)Double Line Single Line$(36,197)Double Line Single Line$(21,345)Double Line Single Line$(182,229)Double Line
Net Book Value at December 31, 2018 Double Line$332,575 Double Line$10,277 Double Line$20,553 Double Line$22,738 Double Line$386,143
Net Book Value at December 31, 2019 Double Line$305,713 Double Line$10,149 Double Line$18,823 Double Line$19,937 Double Line$354,622
[a] Net Book Value includes only indefinite-lived intangible assets
Useful lives range from 13–25 years for customer lists and relationships; 8–20 years for patents and technology; and primarily 5–25 years for other
Amortization of other intangibles aounted to $27.1 million, $280 million, and $25.1 million for the years ended December 31, 2019, 2018, and 2017 respectively. Included in amortization for the years ended December 31, 2019, 2018, and 2017 is $19.5 million, $19.7 million, and $17.7 million, respectively, of amortization using the pattern of economic benefit method.

Also, notice they do not amortize trade names and trademarks (nor do they amortize goodwill) because there is no determinable useful life. Note that the company uses the “pattern of benefits” method of calculating amortization (matching the expense to future cash flows/revenues).

The total net book value of other intangibles (historical cost minus accumulated amortization) of $354.622 million at December 31, 2019  is equal to the number on the balance sheet. As accountants, it’s imperative that our sub schedules and subsidiary ledger always tie to control accounts.

Albemarle Corporation and Subsidiaries
(In Thousands)
Description December 31, 2019 December 31, 2018
Subcategory, Assets
Subcategory, Current Assets:
     Cash and cash equivalents $     613,110 $     555,320
     Total accounts receivable, less allowance for doubtful amounts (2019–$3,1711; 2018–$4,460) 612,651 605,712
     Other accounts receivable 67,551 52,059
     Inventories 768,984 700,540
     Other current assets 162,813 84,790
          Total current assets Single line2,225,109 Single line1,998,421
Property, plant and equipment, at cost Single line6,817,843 Single line4,799,063
     Less accumulated depreciation and amortization 1,908,370 1,777,979
          Net property, plant and equipment Single line4,909,473 Single line3,021,084
Investments Single line579,813 Single line528,722
Other assets 213,061 80,135
Goodwill 1,578,785 1,567,169
Other intangibles, net of amortization 354,622 386,143
Total Assets Single line
$     9,860,863
Double line
Single line
$     7,581,674
Double line