97 T.C. 253">*263 To depreciate an intangible asset, a taxpayer must demonstrate that the asset has a limited useful life, the duration of which can be estimated with reasonable accuracy, and an ascertainable value separate and distinct from goodwill or going-concern value. Southern Bancorporation, Inc. v. Commissioner, 847 F.2d 131">847 F.2d 131, 847 F.2d 131">136-137 (4th Cir. 1988), affirming a Memorandum Opinion of this Court; Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240">481 F.2d 1240, 481 F.2d 1240">1250 (5th Cir. 1973); 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra at 479.

Petitioner contends that1991 U.S. Tax Ct. LEXIS 75">*92 the assembled work force is an asset separate and distinct from goodwill or going-concern value and that this asset has an ascertainable limited useful life. Petitioner concludes that the replacement cost method can be used to value the assembled work force and that when valued on this basis no part of the value of this assembled work force is an integral part of going-concern value. Respondent contends that an assembled work force represents the value inherent in having a trained staff of employees in place, enabling the business to continue without interruption, and is going-concern value. Respondent argues that, because going-concern value is not a depreciable asset, petitioner is not entitled to a deduction for amortization of the assembled work force.

Respondent contends that, as a matter of law, the value of an assembled work force represents going-concern value. Petitioner argues that the determination of whether the assembled work force is an intangible asset with an ascertainable useful life and value and, therefore, subject to amortization, is a question of fact. Although it has been consistently held that no deduction for amortization is allowable for goodwill and1991 U.S. Tax Ct. LEXIS 75">*93 going-concern value, sec. 1.167(a)-3, Income Tax Regs.; 348 F.2d 175">United States v. Cornish, supra, it also has been consistently held that the determination of whether an intangible asset is part of goodwill or going-concern value is a question of fact. 481 F.2d 1240">Houston Chronicle Publishing Co. v. United States, supra at 1245-1251; 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra at 479. Accordingly, whether the assembled work force is an intangible asset with an ascertainable value and a limited 97 T.C. 253">*264 useful life separate from goodwill or going-concern value is a question of fact.

Going-concern value is "the additional element of value which attaches to property by reason of its existence as an integral part of a going concern." VGS Corp. v. Commissioner, 68 T.C. 563">68 T.C. 563, 68 T.C. 563">591 (1977). It is characterized by the ability of an acquired business to continue to operate and generate income without interruption during and after acquisition. UFE, Inc. v. Commissioner, 92 T.C. 1314">92 T.C. 1314, 92 T.C. 1314">1323 (1989); Solitron Devices, Inc. v. Commissioner, 80 T.C. 1">80 T.C. 1, 80 T.C. 1">19-20 (1983), affd. without published1991 U.S. Tax Ct. LEXIS 75">*94 opinion 744 F.2d 95">744 F.2d 95 (11th Cir. 1984); 68 T.C. 563">VGS Corp. v. Commissioner, supra at 592; Computing & Software, Inc. v. Commissioner, 64 T.C. 223">64 T.C. 223, 64 T.C. 223">235 (1975). While goodwill and going-concern value are often referred to conjunctively, technically going-concern value is the ability of a business to generate income without interruption, even though there has been a change in ownership; and goodwill is a "preexisting" business relationship, based on a continuous course of dealing, which may be expected to continue indefinitely. 64 T.C. 223">Computing & Software, Inc. v. Commissioner, supra at 232. See also Winn-Dixie Montgomery, Inc. v. United States, 444 F.2d 677">444 F.2d 677, 444 F.2d 677">685 (5th Cir. 1971).

Prior case law supports a conclusion that, because an assembled work force is necessary to allow the business to operate and generate income without interruption during and after acquisition, such assembled work force generally is not an asset that is separate and distinct from going-concern value.

In First Pennsylvania Banking & Trust Co. v. Commissioner, 56 T.C. 677">56 T.C. 677, 56 T.C. 677">690 (1971), when discussing the1991 U.S. Tax Ct. LEXIS 75">*95 amount of the amortization deduction to which the taxpayer was entitled with respect to a mortgage servicing business it had purchased, we stated:

We note that the agreement did not (and obviously could not) state that Clarke's employees were bound over to Penn, but this does not detract from the probability that the employees would join petitioner's operation and that this factor formed a part of the going-concern value which was purchased. * * *

The issue before this Court was the amount of the purchase price of Clarke with respect to which Penn was entitled to amortization deductions. Respondent argued that, although Penn was entitled to amortization deductions for the right to receive servicing fees, Penn had also purchased intangible assets from its predecessor such as the right to service future loans and Clarke's goodwill and going-concern value.

Before the transaction, Clarke originated loans for various lenders and also serviced loans which in many cases it had originated. Penn hired most of Clarke's employees, serviced loans formerly serviced by Clarke, serviced future loans of some of Clarke's customers, had full use of the escrow funds associated with all loans, and was in possession of Clarke's records and information on servicing loans. From the outset, Penn knew that it would employ Clarke's personnel and take over the files and equipment, thus benefitting from Clarke's experience and know-how. The personnel were expected to and did continue to perform the same duties and services 1991 U.S. Tax Ct. LEXIS 75">*97 as they had for Clarke. We found in 56 T.C. 677">First Pennsylvania Banking & Trust Co. v. Commissioner, supra at 690, that a portion of what was paid for the right to service the existing loans and the right to use the escrow amounts associated therewith were amortizable and the remaining portion of the purchase price paid was allocable to goodwill or going-concern value, nonamortizable intangible assets.

97 T.C. 253">*266 In 64 T.C. 223">Computing & Software, Inc. v. Commissioner, supra, Computing & Software, Inc., acquired substantially all the properties, assets, and liabilities of Consumer Credit Clearance and the assets, including the credit information files, goodwill, and trade names, of Retail Merchants Credit Association and of Credit Bureau of Compton and Lynwood. Consumer Credit Clearance, Retail Merchants Credit Association and Credit Bureau of Compton and Lynwood operated credit information services.

One of the issues before this Court was whether the credit information files were subject to depreciation. We found that the taxpayer had satisfied its burden of proof and established that the credit files purchased were separate and distinct from the goodwill of1991 U.S. Tax Ct. LEXIS 75">*98 the companies purchased because the credit information had value for only a limited period. However, we found that in addition to credit information files, goodwill and going-concern value had been purchased. In concluding that going-concern had been purchased, we listed factors which demonstrated that the taxpayer could continue to provide services to customers of the acquired business without interruption because of a takeover. These factors included:

-- an organization that was doing business and earning money; a network of customers and the expectation that their patronage would continue; a staff of employees trained in working with the credit files and dealing with the organization's customers; an established routine for supplying available credit information and obtaining and recording new data from various sources; and an established routine for recording the fees charged for credit-reporting services and billing the customers. * * *

Petitioner's contention with respect to its work 1991 U.S. Tax Ct. LEXIS 75">*99 force is conceptually similar to that in the cases discussed above. The existence of a trained and operational staff allowed Ithaca to step into the shoes of Old Ithaca. Ithaca acquired an organization that was doing business and earning money, had a staff of employees trained in operating sewing machines, working with fabrics, etc., and had an established routine for preparing garments. While the employees of Old Ithaca were not bound over to Ithaca, this fact does not 97 T.C. 253">*267 detract from the probability that the employees would join Ithaca's operation. Therefore, the assembled work force represents going-concern value, which has been regarded as not having an ascertainable useful life.

Generally an asset has been regarded as an asset distinct from goodwill and going-concern value where the evidence shows such asset to be a wasting asset with a reasonably ascertainable useful life and value. An asset is subject to amortization only if it is a wasting asset. Richard S. Miller & Sons, Inc. v. United States, 210 Ct. Cl. 431">210 Ct. Cl. 431, 537 F.2d 446">537 F.2d 446, 537 F.2d 446">452 (1976). Depreciation is intended to reflect the loss in value of an asset used to produce income and to make a1991 U.S. Tax Ct. LEXIS 75">*100 meaningful allocation of the cost to the tax period benefited by the use of the asset. Massey Motors, Inc. v. United States, 364 U.S. 92">364 U.S. 92, 4 L. Ed. 2d 1592">4 L. Ed. 2d 1592, 80 S. Ct. 1411">80 S. Ct. 1411 (1960). The Eighth Circuit Court of Appeals, in discussing the theory of depreciation, stated --

This allowance for depreciation is intended to provide a nontaxable fund to restore income-producing assets at the end of their useful life and their capacity to produce income has ceased or, to allow a taxpayer to recoup his investment in wasting assets free of income tax. * * *

In this case, it is "the assembled work force" that petitioner claims is a wasting asset, not each individual worker. Although the assembled work force is used to produce income, this record fails to show that its value diminishes as a result of the passing of time or through use. As an employee terminated his or her employment, another would be hired and trained to take his or her place. While the assembled work force might be subject to temporary attrition as well as expansion through departure of some employees and the hiring of others, 1991 U.S. Tax Ct. LEXIS 75">*101 it would not be depleted due to the passage of time or as a result of use. The turnover rate of employees represents merely the ebb and flow of a continuing work force. An employee's leaving does not interrupt or destroy the continued existence of the whole. To the extent the leaving of any employee reduces the value of the assembled work force as a whole this value would be restored by the hiring of a new employee. The whole of the assembled work force is equal to the sum of its employees, but each employee enjoys no separate capital standing independent of the whole. See generally97 T.C. 253">*268 Golden State Towel & Linen Service, Ltd. v. United States, 179 Ct. Cl. 300">179 Ct. Cl. 300, 373 F.2d 938">373 F.2d 938 (1967); Thrifticheck Service Corp v. Commissioner, 33 T.C. 1038">33 T.C. 1038, 33 T.C. 1038">1047 (1960), affd. 287 F.2d 1">287 F.2d 1 (2d Cir. 1961). Because the assembled work force does not diminish in value as a result of the passage of time or through use, there is no loss in value that must be allocated to the tax period benefitted by the use of the assembled work force.

The cases relied on by petitioner, such as Citizens & Southern Corp. v. Commissioner, 91 T.C. 463">91 T.C. 463, 91 T.C. 463">479 (1988), affd. 1991 U.S. Tax Ct. LEXIS 75">*102 without published opinion 900 F.2d 266">900 F.2d 266 (11th Cir. 1990), Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240">481 F.2d 1240 (5th Cir. 1973), and First Pennsylvania Banking & Trust Co. v. Commissioner, 56 T.C. 677">56 T.C. 677 (1971), where the addition of new deposit accounts or customers or service contracts obtained by the taxpayer were held not to replace the ones purchased by the taxpayer which were lost through the years, are factually distinguishable from the present case. The assets involved in those cases are very different from an assembled work force. In the situations involved in those cases the taxpayer would attempt to obtain as many new customers, contracts, or deposit accounts as possible since those accounts would mean growth of the business. If new accounts had to be used in replacing an account taken over from another concern that had been lost, this growth might not occur, but the obtaining of new accounts, customers, or contracts was in no way limited to replacing ones taken over from a predecessor which were lost. Here, absent a growth in the petitioner's business or change in that business which was not shown to have1991 U.S. Tax Ct. LEXIS 75">*103 occurred, petitioner's work force was stationary and replacements were made only when there was a person who resigned, retired, or was fired. Therefore, the replacement did replace the person lost rather than being an addition or increase. Except when losing a worker, petitioner would not hire a new worker. Therefore the work force as such did not diminish as did a group of deposit accounts, service contracts, or subscriber lists. The work force continued with only necessary replacements. The necessary replacements did not form a separate asset of petitioner as did the subscribers, service contracts, or bank deposit accounts obtained by a taxpayer through its own 97 T.C. 253">*269 efforts. The obtaining of new subscribers, customers, contracts, or deposit accounts might well represent growth of the taxpayer's business rather than replacing a diminishing asset. We conclude from the facts here present that petitioner's assembled workforce was not a wasting asset.

If the asset is not a wasting asset, the taxpayer must wait until he sells the business to recover any gain or loss inhering in that asset. Misegades v. Commissioner, 53 T.C. 477">53 T.C. 477 (1969). In Misegades the taxpayer1991 U.S. Tax Ct. LEXIS 75">*104 purchased a patent law practice. We held that it was customary for retiring patent attorneys and the estate of a deceased patent attorney to sell the patent law practice. In finding that the taxpayer had purchased an intangible asset in the nature of goodwill which had no ascertainable useful life, we stated that --

at whatever time petitioner retired, or should he continue in practice until his death, at the time of his death the intangible asset composed of the patent law practice which he purchased might have a value equal to or in excess of the amount petitioner paid for the asset. Therefore, there is nothing in this record to indicate that an amortization or depreciation deduction should be allowed with respect to the $ 45,000 over petitioner's life expectancy. * * *

The assembled work force, just as the patent law practice involved in Misegades is not a wasting asset. The assembled work force would be included in any sale of the entire business by petitioner as it was in petitioner's purchase of the assets of Old Ithaca and at the time of such a sale petitioner would realize any gain or loss1991 U.S. Tax Ct. LEXIS 75">*105 with respect to the assembled work force.

Petitioner argues that it has shown that there is a limited useful life of the assembled work force separate and distinct from going-concern value and, therefore, has shown that it is an asset separate from goodwill or going-concern value. A taxpayer may establish the useful life of an asset for purposes of depreciation based on his own experience with similar property or, if his own experience is inadequate, based on the general experience of the industry. Sec. 1.167(a)-1(b), Income Tax Regs. Mathematical or absolute accuracy is not required when estimating the life of a depreciable asset. A rough estimate or reasonable approximation is sufficient. Burnet v. Niagara Falls Brewing Co., 282 U.S. 648">282 U.S. 648, 282 U.S. 648">654-655, 75 L. Ed. 594">75 L. Ed. 594, 97 T.C. 253">*270 51 S. Ct. 262">51 S. Ct. 262 (1931); Super Food Services, Inc. v. United States, 416 F.2d 1236">416 F.2d 1236, 416 F.2d 1236">1238 (7th Cir. 1969); Citizens & Southern Corp. v. Commissioner, 91 T.C. 463">91 T.C. 463, 91 T.C. 463">500 (1988), affd. without published opinion 900 F.2d 266">900 F.2d 266 (11th Cir. 1990). The useful life must be based on facts existing as of the close of the taxable year in issue. Southern Bancorporation, Inc. v. Commissioner, 847 F.2d 131">847 F.2d 131, 847 F.2d 131">137 (4th Cir. 1988),1991 U.S. Tax Ct. LEXIS 75">*106 affirming a Memorandum Opinion of this Court; 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra at 500. Evidence of a taxpayer's subsequent experience is acceptable to corroborate its projections based on prior experience. 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra at 500.

Petitioner argues, first, that the life of the work force is limited because employees will terminate their employment with petitioner. The termination will be either voluntary, involuntary, or as a result of death. Petitioner argues that the fact that the employment relationship will terminate at the latest upon the death of the employee establishes a limited useful life for the assembled work force under the holding of Newark Morning Ledger Co. v. United States, 734 F. Supp. 176">734 F. Supp. 176 (D.N.J. 1990).

In 734 F. Supp. 176">Newark Morning Ledger Co. v. United States, supra, a predecessor to Newark Morning Ledger Company, Herald Company, purchased all the outstanding stock of Booth Newspapers. Both Newspapers published a number of paid-circulation newspapers. A paid-circulation newspaper is one where the newspaper is sold to the readers. 1991 U.S. Tax Ct. LEXIS 75">*107 Herald Company claimed depreciation deductions for the paid-circulation subscribers of the newspapers that it acquired. The issue before the court was whether the acquisition of existing paying subscribers was an amortizable intangible asset separate and apart from goodwill.

The facts in 734 F. Supp. 176">Newark Morning Ledger Co. v. United States, supra at 176, are distinguishable from the facts in the present case since it is the work force in place that petitioner contends is the separate asset in the instant case. This fact distinguishes this case from 734 F. Supp. 176">Newark Morning Ledger Co. v. United States, supra, as it does from the other cases relied on by petitioner in valuing customers or subscribers. In the case of accounts, customers, or subscriptions, the new account, customer, or subscriber obtained is 97 T.C. 253">*271 not necessarily related to the discontinuing of the old and the taxpayer would prefer to keep both. In the instant case only when an employee leaves is he or she replaced so that there is no change nor is there intended to be a change in the assembled work force. The training of the new employee to keep the assembled work force unchanged is a deductible1991 U.S. Tax Ct. LEXIS 75">*108 expense.

Petitioner contends that our holding in 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra, supports its argument that the assembled work force has a limited useful life. The taxpayer in 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra, acquired nine banks and allocated a portion of the purchase price to an identified deposit base as a separately defined intangible asset. The deposit base had a value equal to the present value of the future stream of income to be derived from employing the purchased core deposits of a bank. The taxpayer proved that the deposit base had an ascertainable cost basis separate and distinct from the goodwill and going-concern value of the acquired banks and that it had a limited useful life, the duration of which could be ascertained with reasonable accuracy. We held that the taxpayer was entitled to allocate to the deposit base an amount equal to the present value of the difference in cost between the acquired core deposits and the market alternative.

The facts in this case are distinguishable from 91 T.C. 463">Citizens & Southern Corp. v. Commissioner, supra. In Citizens & Southern1991 U.S. Tax Ct. LEXIS 75">*109 this Court made a factual determination that the core deposits at issue did not possess any characteristics of goodwill. On the facts in this case, we conclude that the assembled work force is not an asset that is separate and distinct from going-concern value since it is not a wasting asset.

Petitioner relies on the analysis of a Dr. Doerfler, whom it engaged to conduct a lifting analysis of the assembled work force in place on the date of the merger to support its argument that the assembled work force has a limited useful life which can be measured with reasonable accuracy. Specifically, Dr. Doerfler was engaged to determine the rate at which workers employed by Ithaca on the date of the merger could be expected to terminate employment following 97 T.C. 253">*272 the acquisition. Dr. Doerfler determined that the average useful life of the aggregate assembled work force was approximately 6.8 years and summarized how 5,149 employees would be expected to terminate over the subsequent years. Respondent objects to the statistical method used by Dr. Doerfler. However, we need not decide whether this statistical method is appropriate since we do not agree that such statistical method is an accurate1991 U.S. Tax Ct. LEXIS 75">*110 measure of the useful life of the assembled work force. Dr. Doerfler has attempted to determine the useful life of the individuals who make up the work force on the day of the merger, not the length of time the work force as an assembled entity will exist in the hands of the corporation. As noted above, each employee is not a separate asset independent of the whole as would be the situation under petitioner's theory. The rate at which the individual employees who make up the work force on a specific day will leave their jobs is not a determination of the length of time an assembled work force as an entity will be an intangible asset of the business. This is evidenced by the fact that, while individual employees that make up the assembled work force on a specific date may leave the work force at a predictable rate, the work force as an assembled entity does not diminish by reason of the employees leaving. If the useful life of the employees employed on the date of the merger were the same as the useful life of the assembled work force, at the end of 6.8 years petitioner would no longer have an assembled work force. Clearly, this is not the case.

Accordingly, we hold that the1991 U.S. Tax Ct. LEXIS 75">*111 assembled work force is not separate and distinct from going-concern value and, because it is not a depreciable asset, that amortization deductions claimed by petitioner are not allowable.

Raw Material Contacts

Under section 167(a) and section 1.167(a)-3, Income Tax Regs., a contract which has a limited life and is utilized in the business of a taxpayer may be amortized ratably over its useful life. Triangle Publications, Inc. v. Commissioner, 54 T.C. 138">54 T.C. 138, 54 T.C. 138">147 (1970). In order to show that a contract is amortizable, a taxpayer must establish that the contract has a limited useful life, the duration of which can be 97 T.C. 253">*273 estimated with reasonable accuracy, and an ascertainable value separate and distinct from goodwill and going-concern value. Southern Bancorporation, Inc. v. Commissioner, 847 F.2d 131">847 F.2d 131, 847 F.2d 131">136-137 (4th Cir. 1988), affirming a Memorandum Opinion of this Court; Houston Chronicle Publishing Co. v. United States, 481 F.2d 1240">481 F.2d 1240, 481 F.2d 1240">1250 (5th Cir. 1973); Citizens & Southern Corp. v. Commissioner, 91 T.C. 463">91 T.C. 479.

Petitioner argues that the contracts are separate and distinct from going-concern 1991 U.S. Tax Ct. LEXIS 75">*112 value. Respondent argues that the favorableness of the contracts does not constitute an asset that is separate and distinct from going-concern value because a supply of yarn is essential for the business operations of Ithaca to continue without interruption. Respondent contends that the contracts represent favorable business factors and as such are part of going-concern value.

Respondent states that VGS Corp. v. Commissioner, 68 T.C. 563">68 T.C. 563 (1977), supports his contention. In VGS Corp. a predecessor of VGS Corporation acquired all of the stock of another corporation and certain assets of a partnership. No allocation of the purchase price was made to supply contracts held by one of the acquired companies. No allocation was made to the contracts because no competitive advantage was gained from them, not because they were considered to be part of going-concern value. We conclude that our holding in 68 T.C. 563">VGS Corp. v. Commissioner, supra, does not support respondent's contention.

We do not agree with respondent that the fact that a supply of yarn is essential for petitioner's business operations requires the characterization of the yarn contracts1991 U.S. Tax Ct. LEXIS 75">*113 asset as goodwill or going-concern value. Certain equipment may be essential for business operations, but the equipment may also be a depreciable asset, separate and distinct from going-concern value. While raw material is necessary to enable Ithaca to continue its business, contracts for acquisition of the raw material at a specified price are assets that are separate and distinct from going-concern value. See Triangle Publications, Inc. v. Commissioner, 54 T.C. 138">54 T.C. 138 (1970); Hoffman v. Commissioner, 48 T.C. 176">48 T.C. 176 (1967).

Petitioner argues that the contracts had a useful life of 14 months. Respondent argues that the contracts did not have 97 T.C. 253">*274 a limited useful life. While the useful life of an asset must be based on the facts as they exist at the close of the taxable year in issue, 847 F.2d 131">Southern Bancorporation, Inc. v. Commissioner, supra; Citizens & Southern Corp. v. Commissioner, 91 T.C. 463">91 T.C. 463, 91 T.C. 463">500 (1988), affd. without published opinion 900 F.2d 266">900 F.2d 266 (11th Cir. 1990), a taxpayer may establish the useful life of an asset based on its own experience with similar property. Sec. 1.167(a)-1(b), 1991 U.S. Tax Ct. LEXIS 75">*114 Income Tax Regs.

Respondent argues that the life of the contracts is indefinite because any value inhering in the contracts exists only so long as the favorable price spread is predicted to exist. Respondent argues that because yarn prices fluctuate, it is impossible to predict with any accuracy the length of time the spread would exist. We find this argument unpersuasive. The favorable spread of the contracts is not the asset being amortized. The asset is the contracts themselves. The favorable spread is used only to determine the value of the contracts.

Respondent argues that the contracts are indefinite in length because the existing contracts would be replaced with new contracts with the same suppliers and therefore were regenerative. Where a contract is renewable indefinitely as a matter of course it generally will be considered as having an indefinite life and therefore not subject to amortization under section 167. Triangle Publications, Inc. v. Commissioner, 54 T.C. 138">54 T.C. 138, 54 T.C. 138">147 (1970). The probability of future renewals is a question of fact. Toledo TV Cable Co. v. Commissioner, 55 T.C. 1107">55 T.C. 1107, 55 T.C. 1107">1117 (1971), affd. 483 F.2d 1398">483 F.2d 1398 (9th Cir. 1973);1991 U.S. Tax Ct. LEXIS 75">*115 Westinghouse Broadcasting Co. v. Commissioner, 36 T.C. 912">36 T.C. 912, 36 T.C. 912">921 (1961), affd. 309 F.2d 279">309 F.2d 279 (3d Cir. 1962). The contracts here in issue were not renewable as a matter of course. The cotton and polyester markets were very volatile. While new contracts might or might not be negotiated by petitioner with the same supplier, neither the purchaser nor the supplier would be willing to enter into a contract that was automatically renewable or consider any contract as automatically renewable with prices as volatile as those of the yarn market. The record here supports petitioner's contention that the year contracts were not automatically renewed. Petitioner presented 97 T.C. 253">*275 convincing evidence that all contracts were entered into only after negotiations. Each contract would contain its own quantity to be delivered, delivery schedule, type and quality of yarn, and price. The price that could be obtained would depend on the amount Ithaca intended to order, the supply and demand of the market in general, the time of year Ithaca was placing its order, the time between placing the order and delivery, and sometimes the price of polyester. Each contract here involved1991 U.S. Tax Ct. LEXIS 75">*116 is separate and distinct from a predecessor contract even when the parties are the same. The fact that old contracts which are not by their terms renewable may be replaced with new contracts does not make the life of the old contracts indefinite or regenerative. See Commissioner v. Seaboard Finance Co., 367 F.2d 646">367 F.2d 646 (9th Cir. 1966), affg. a Memorandum of Opinion of this Court.

Respondent next argues that the contracts are indefinite in length because the stated delivery or termination dates were occasionally changed. Because of the volume of yarn that Ithaca purchased and the length of time from order to delivery, the parties contemplated a reasonable measure of flexibility in the delivery schedule of the yarn. This is evidenced by the fact that it was common for the delivery dates to be altered. However, since alteration was by mutual agreement of the parties, the provisions of the contracts were honored by both parties. The fact that the delivery schedule was altered to meet the needs of Ithaca and that final delivery was not always completed before the termination date stated on the contract does not cause the contracts to have an indefinite life. Petitioner1991 U.S. Tax Ct. LEXIS 75">*117 need only establish a reasonable approximation of the useful life of an asset for purposes of depreciation. Burnet v. Niagara Falls Brewing Co., 282 U.S. 648">282 U.S. 648, 282 U.S. 648">655, 75 L. Ed. 594">75 L. Ed. 594, 51 S. Ct. 262">51 S. Ct. 262 (1931). We find that a 14-month useful life for the yarn contracts as a whole is a reasonable approximation. Accordingly, we hold that the yarn contracts are an intangible asset properly amortizable over a 14-month period.

Respondent argues that the nonassignment clause in each contract destroys any favorableness because the seller would consent to an assignment only if the contracts were favorable to the supplier on the acquisition date. Generally 97 T.C. 253">*276 in a merger the surviving corporation succeeds to the rights of the old corporation by operation of law, not by assignment. Therefore, the nonassignability clause in the contract would not have prevented petitioner from enforcing its rights under the supply contracts following the merger. See Econo-Travel Motor Hotel Corp. v. Taylor, 301 N.C. 200">301 N.C. 200, 271 S.E.2d 54">271 S.E.2d 54 (1980). The nonassignment clause in the contracts would of course have an effect on petitioner's ability to sell them, which would mean that the value of these1991 U.S. Tax Ct. LEXIS 75">*118 contracts could not be reasonably determined on a sale basis. However, the nonassignment clause does not keep the contracts from having a value to petitioner. The contracts enable petitioner to obtain yarn at a price less than current market price. The nonassignment clause without the seller's consent affects the value of the contracts, but does not cause them to have no reasonably ascertainable value.

Petitioner measured the savings yielded by each supply contract by computing the difference between the price in the supply contract and the claimed market price for the same yarn as of the merger date. The savings were then computed for the remaining term of each supply contract by multiplying the favorable price differential by the pounds to be delivered in each month. The present value of the total savings per month was determined using an 11.99-percent discount rate. Those savings were then tax-effected at a rate of 48 percent and the amortization benefit factored in.

Respondent, through his expert witness Mr. Kim, computed the value of the contracts (as an alternative to claiming that no value could reasonably be computed) by using a lesser market price and a 15-percent1991 U.S. Tax Ct. LEXIS 75">*119 discount rate and eliminating contracts which showed no deliveries after the merger date or that had been completed prior to the merger date. Petitioner in appendix III to its brief followed respondent's system except that petitioner used the same market price for yarn that had been used in its prior compilations. On the basis of this compilation, which petitioner stated was the "value of raw material contracts using Mr. Kim's formula," petitioner arrived at a fair market value of the contracts of $ 951,353. After reviewing all of the evidence in this case and considering the opinions 97 T.C. 253">*277 as to the value of the yarn contracts as of the date of the merger given by both petitioner's and respondent's expert witnesses, we conclude that the most reasonable method of valuing these contracts is the method as used in appendix III to petitioner's brief with the exception that the market price used by petitioner in the compilation is too high. Petitioner's compilation makes no adjustment for the fact that petitioner as a quantity purchaser was able to obtain a better price than the going market price used in the compilation. Neither the price from petitioner's own records nor the market prices1991 U.S. Tax Ct. LEXIS 75">*120 from Inside Textiles adjusts for quantity purchases.

The testimony of respondent's witness shows with respect to at least one contract that the price obtained on the date of the merger or substantially close to that date by petitioner in a purchase of yarn was 6 cents per pound lower than the mean quoted market price of Inside Textiles and petitioner's own recorded market price. We conclude that some discount must be taken on the market price used by petitioner in making the compilation in order to determine the true value of the yarn contracts considering prices petitioner would have paid without the contracts. The current market prices used by petitioner for the various yarns ranged from a low of $ 1.73 to a high of $ 3.17. From the record in this case, we cannot determine a precise average price either on all cotton yarns or yarns with some polyester. However, we conclude based on the record as a whole that a reasonable discount on all the prices for the quantities in which petitioner purchased is 2.5 percent on the market price at the date of merger as used in appendix III attached to petitioner's brief. If in any instance this results in a market price below the contract1991 U.S. Tax Ct. LEXIS 75">*121 price, that particular contract should be eliminated since from the testimony as a whole it appears to be unlikely that there were prices at the merger date in October 1983 that were lower than the contract prices for the same yarn. We, therefore, decide that a proper computation of the market value is the value as computed in appendix III to petitioner's brief after adjusting market prices as used in that compilation by reducing such prices by 2.5 percent but eliminating any contracts where no savings result. The 97 T.C. 253">*278 parties can make the computation of the value of the yarn contracts determined on this basis in connection with their recomputation under Rule 155.

Decision will be entered under Rule 155.