12 Intangible Assets Flashcards
What are intangible assets?
Long-term operational assets that lack physical substance or presence but are currently used in the operation of a business and have a useful life extending more than one year from the balance sheet date
What method is used to amortize intangible assets?
Straight line, unless another systematic method can be shown as more appropriate
What costs can be capitalized to an intangible asset?
Only external costs can be capitalized. Examples are registration of patent, successful legal defense of the patent, legal and accounting fees, and design costs.
What is the impairment test for definite-life intangibles?
- The book value (BV) of the definite-life intangible is compared to the recoverable cost (RC) of the intangible asset. If BV > then RC, then
- BV is compared to fair value (FV). If BV > FV, then impairment loss = BV − FV.
How is amortization of definite life intangibles recorded?
Debit amortization expense and credit the intangible asset (There is no accumulated amortization contra account as with tangible assets.)
When can impairment of an intangible be recovered?
Impairment of an indefinite- or definite-life intangible cannot be recovered.
List some examples of finite-lived and indefinite-lived intangibles.
Finite-lived: Patents, copyrights, franchises
Indefinite-lived: research and development costs, goodwill
How is purchased software with no customization accounted for?
The software is capitalized and amortized over its expected useful life
How do finite-lived and indefinite-lived intangibles differ?
Finite-lived intangibles have an identifiable useful life or may have a specific legal life. Indefinite-lived intangibles have no legal, regulatory, contractual, competitive or other limits on their life. Indefinite means that there is no foreseeable limit on the period of time over which the intangible is expected to provide cash flows.
Only finite-lived intangibles are amortized.
Are all legal fees capitalized as part of the initial carrying amount of an intangible?
No. Only legal fees associated with successful defense of an intangible are capitalized. Legal fees related to unsuccessful defense are expensed immediately.
