21. Intangible Assets: Goodwill, Research and Development Flashcards
What are two common intangible assets?
- Goodwill
- Research and development
What is Goodwill?
The excess of the value of a business over the fair value of its net assets.
What is purchased Goodwill?
Goodwill arising from the purchase of another company.
Can purchased Goodwill be capitalised as a non-current asset?
Yes, and amortised.
Can non-purchased Goodwill be capitalised as a non-current asset?
No, as it is not accounted for in the financial statements.
What is non-purchased Goodwill?
The estimated excess value of the business above the worth of its net tangible assets.
This amount cannot be objectively verified.
What is research?
Original and planned investigation for the prospect of gaining new scientific or technical knowledge and understanding.
What is development?
The application of research findings or other knowledge to plan/design the production of new/substantially improved materials, devices, products, processes, systems or services, prior to the commencement of commercial production or use.
How is research expenditure treated in accounting?
It should be charged to the SoPL as an expense in the period that it occured.
How is development expenditure treated in accounting?
It should be capitalised and shown as an asset in the SoFP if the following conditions apply:
- There is an identifiable product
- The company has the resources to complete the development
- There is an identified market for the product
- The expenditure is measurable
What happens to development expenditure if it does not meet the requirements to be shown in the SoFP?
It is written off in the SoPL.
Regarding intangible assets, what is required to be disclosed in the financial statements?
- The amortisation method
- The amount of amortisation during the period
- A reconciliation between the written down value brought forward.
- Amount of research expenditure charged in the SoPL for the period.
