Discussion
A company paid ₹ 50,000 for a purchase of copyright for five years. The process of writing off this cost over a period of five years is called ................ .
Answer: B
Writing off the cost of a copyright is called amortization.
A copyright is an intangible asset with a limited useful life. Spreading its cost over that life, here ₹ 10,000 a year for five years, is amortization, the intangible-asset counterpart of depreciation. Patents, licences and goodwill are written off the same way.
Depreciation applies to tangible fixed assets such as machinery and buildings, and depletion to wasting natural resources such as mines and oil wells. Deferred revenue expenditure is revenue spending, such as heavy advertising, whose benefit is spread over several years; buying a copyright is capital expenditure on an asset.
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