9.4 Intangible assets and goodwill

Question 1

Intangible assets and goodwill are similar to property, plant, and equipment in that they are long-lived resources not intended for sale and are used in business operations. All three types of assets provide economic benefits in future periods, and we report them as non-current.

Answer 1

Intangible assets and goodwill are similar to property, plant, and equipment in that they are long-lived resources not intended for sale and are used in business operations. All three types of assets provide economic benefits in future periods, and we report them as non-current.

Question 2

intabginle assets and goodwill- what are the difference between this and regular assets

Answer 2

1) have no physical substance
2) provide righgts, privelegs, and/or comp adv

Question 3

criteria of intangible assets

Answer 3

1) can be separated from the company and sold, licensed or rented

OR

2) they are based on contractual or legal rights, regardless of whether or not they can be separated from company

Question 4

how are intangible assets recorded?

Answer 4

at cost

cost of acquisiton + costs incurred to make the intangible asset ready for intended use (legal fees)

Question 5

Companies can account for intangible assets using either the cost model or the revaluation model after acquiring these assets. Since most companies use the cost model, we will leave further study of the revaluation model as it applies to intangible assets for a later accounting course.

Answer 5

Companies can account for intangible assets using either the cost model or the revaluation model after acquiring these assets. Since most companies use the cost model, we will leave further study of the revaluation model as it applies to intangible assets for a later accounting course.

Question 6

2 types of lives intangible assets can have

Answer 6

finite/limited life

indefinite/unlimited life

Question 7

if intangible assets has a finite life

Answer 7

systematically allocate cost to an expense over its useful life

THIS IS CALLED AMMORRTIXZAITONSi

Question 8

if an asset has an indefinitine life

Answer 8

then the lives are not ammortixed

Question 9

The amortizable amount (cost less residual value) of intangible assets with a finite life are amortized over the shorter of (1) the estimated useful life and (2) the legal life. Intangible assets, by their nature, rarely have any residual value, so the amortizable amount is normally equal to the cost. The useful life of an intangible asset is normally used as this is usually shorter than its legal life. We will discuss this in more detail shortly.

Answer 9

The amortizable amount (cost less residual value) of intangible assets with a finite life are amortized over the shorter of (1) the estimated useful life and (2) the legal life. Intangible assets, by their nature, rarely have any residual value, so the amortizable amount is normally equal to the cost. The useful life of an intangible asset is normally used as this is usually shorter than its legal life. We will discuss this in more detail shortly.

Question 10

Similar to depreciation, amortization begins when the intangible asset is ready for use as intended by management. Intangible assets are typically amortized using the straight-line method.

Answer 10

wordwhat

Question 11

what is the je needed to record ammortization

Answer 11

DR amortization expense
CR acc amortization

Question 12

Recall from earlier in this chapter that an asset is impaired if its fair value falls below its carrying amount. As they do for property, plant, and equipment, companies must determine if there are indicators of impairment on intangible assets with finite lives. If there are indicators, companies conduct an impairment test. Under IFRS, annual impairment tests are required for intangible assets with indefinite lives even if no indicators of impairment are present.ASPE Under ASPE, companies do this only if indicators of impairment are present. If any impairment is evident, companies write down the asset to its fair value by recording a debit to an impairment loss account that is reported in the operating expenses section of the statement of income, while recording the offsetting credit to the Accumulated Amortization account. If the impaired asset is an intangible asset with an indefinite life, then companies credit the asset account directly because there is no Accumulated Amortization account. Other ways to record impairment are possible, and these are covered in more advanced accounting courses.

Answer 12

Recall from earlier in this chapter that an asset is impaired if its fair value falls below its carrying amount. As they do for property, plant, and equipment, companies must determine if there are indicators of impairment on intangible assets with finite lives. If there are indicators, companies conduct an impairment test. Under IFRS, annual impairment tests are required for intangible assets with indefinite lives even if no indicators of impairment are present.ASPE Under ASPE, companies do this only if indicators of impairment are present. If any impairment is evident, companies write down the asset to its fair value by recording a debit to an impairment loss account that is reported in the operating expenses section of the statement of income, while recording the offsetting credit to the Accumulated Amortization account. If the impaired asset is an intangible asset with an indefinite life, then companies credit the asset account directly because there is no Accumulated Amortization account. Other ways to record impairment are possible, and these are covered in more advanced accounting courses.

Question 13

Under IFRS, companies can reverse an impairment loss for intangible assets just as they can for property, plant, and equipment. The reversal cannot exceed the amount needed to return the asset’s carrying amount to what it would have been had the impairment never occurred.ASPE Under ASPE, companies cannot reverse impairment losses.

Answer 13

Under IFRS, companies can reverse an impairment loss for intangible assets just as they can for property, plant, and equipment. The reversal cannot exceed the amount needed to return the asset’s carrying amount to what it would have been had the impairment never occurred.ASPE Under ASPE, companies cannot reverse impairment losses.

Question 14

Like depreciation, a company may need to revise amortization when there is a change in cost or useful life, or an impairment loss. Revisions are treated prospectively because they are a change in an accounting estimate. At disposal, a company will derecognize the intangible asset’s carrying amount by reducing the carrying amount of both the asset and its related accumulated amortization to zero, and recording a gain or loss, if applicable.In the next two sections, we will look in more detail at the accounting for intangibles with finite lives and those with indefinite lives.

Answer 14

Like depreciation, a company may need to revise amortization when there is a change in cost or useful life, or an impairment loss. Revisions are treated prospectively because they are a change in an accounting estimate. At disposal, a company will derecognize the intangible asset’s carrying amount by reducing the carrying amount of both the asset and its related accumulated amortization to zero, and recording a gain or loss, if applicable.In the next two sections, we will look in more detail at the accounting for intangibles with finite lives and those with indefinite lives.

Question 15

what are some intangible assets with finite lives

Answer 15

1) patents
2) copyrights
3) r&d costs

Question 16

patents

Answer 16

exclusive right issued by the Canadian Intellectual Property Office of Innovation, Science and Economic Development Canada. The right allows the patent holder to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the application. The holder of the patent cannot renew it, but they can extend its legal life if they obtain new patents for improvements or other changes in the basic design.

The initial cost of a patent is the price paid to acquire or register it. After acquisition, any legal costs incurred to successfully defend it in any infringement suit are added tothe cost of the patent.Companies amortize the cost of a patent over its 20-year legal life or its useful life, whichever is shorter. The useful life of many patents is shorter than their 20-year legal life. When estimating the useful life of a patent (or any finite-life intangible asset), companies must consider factors such as how long they expect to use the asset, when it may become obsolete, the level of demand for the products or services it produces, and any other relevant conditions that could affect the asset’s useful life. For example, a company that held a patent on pagers or dumb phones would find that smart phones had made their useful lives much shorter than their legal lives. Such a patent would then be amortized over its useful life, rather than its 20-year legal life.

Question 17

copyrights

Answer 17

-granted by CIPC
-gives owner exclusive right to reporduce and sell a work
-valid for life of creator + 50 years

-a useful life of copyright is significantly shorter than legal life

The cost of a copyright consists of the cost of acquiring and defending it. The cost may be quite low and consist of only the cost to acquire and register the copyright, or it may amount to a great deal more if a copyright infringement suit is involved.

Question 18

r&d costs

Answer 18

Research and development (R&D) costs may lead to patents, copyrights, or other intangible assets. Many companies spend considerable sums of money on research and development in an ongoing effort to develop new products or processes. For example, Constellation Software Inc. usually spends over $600 million on research and development each year.When a company develops intangible assets internally rather than acquiring them from another party, two accounting problems arise: (1) it can be difficult to determine the costs related to a specific project; and (2) it is hard to know if future benefits will be generated, and if so, when. To help resolve these issues, accounting distinguishes between a research phase and a development phase.During the research phase, companies do not know if research expenditures will have any future benefit. Consequently, companies will expense the costs pertaining to these expenditures asresearch expenses in a Research Expenses account.

Question 19

The development phase begins when certain criteria are met that indicate that the product being developed will have future benefit. A project or product must meet all the following criteria beforedevelopment costs can be recorded as assets:The product is technically feasible.The company intends to complete development of the product.The company can sell or use the product.The company has adequate resources to complete development of the product.The company can reliably measure the costs incurred on the product.A market exists for the product that will provide future economic benefits.Once a project meets all the above conditions, a company can capitalize future expenditures on the project that specifically relate to its development and record them in the asset account titled Development Costs. During the development phase, if expenditures incurred relate to another specific asset, such as equipment or a patent, then a company will record those costs in their respective accounts rather than in Development Costs. IFRS standards require companies to capitalize development costs.ASPE However, companies reporting under ASPE can either capitalize or expense development costs.The development phase ends when commercial production begins. At that time, the company would begin amortizing the capitalized development costs over the useful life of the product or process developed.

Answer 19

The development phase begins when certain criteria are met that indicate that the product being developed will have future benefit. A project or product must meet all the following criteria beforedevelopment costs can be recorded as assets:The product is technically feasible.The company intends to complete development of the product.The company can sell or use the product.The company has adequate resources to complete development of the product.The company can reliably measure the costs incurred on the product.A market exists for the product that will provide future economic benefits.Once a project meets all the above conditions, a company can capitalize future expenditures on the project that specifically relate to its development and record them in the asset account titled Development Costs. During the development phase, if expenditures incurred relate to another specific asset, such as equipment or a patent, then a company will record those costs in their respective accounts rather than in Development Costs. IFRS standards require companies to capitalize development costs.ASPE However, companies reporting under ASPE can either capitalize or expense development costs.The development phase ends when commercial production begins. At that time, the company would begin amortizing the capitalized development costs over the useful life of the product or process developed.

Question 20

intangible assets with indefinitie lives

Answer 20

1)trademarks
2) franchises and licenses

Question 21

what is a trademark

Answer 21

A trademark (trade name) is a word, phrase, jingle, or symbol that distinguishes or identifies a particular business or product

A creator or original user may obtain the exclusive legal right to a trademark or trade name by registering it with the Canadian Intellectual Property Office. This registration provides continuous protection and holders can renew every 10 years if the trademark or trade name is in use. In most cases, companies continuously renew their trademarks or trade names. Consequently, if the trademark or trade name continues to be marketable, it will have an indefinite useful life.

If a company purchases a trademark or trade name, the cost of this asset is the purchase price. If a company develops this asset internally rather than purchasing it, it cannot be recognized as an intangible asset on the statement of financial position. The reason is that expenditures on internally developed trademarks cannot be distinguished from the cost of developing the business as a whole and consequently cannot be measured.

Question 22

franchises

Answer 22

A franchise is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products, to provide specific services, or to use certain trademarks or trade names, usually within a designated geographic area. A franchise might have an indefinite life if it is renewable at no cost but could have a definite life depending on the terms of the franchise agreeme

Question 23

licenses

Answer 23

Licences, which grant the holder operating rights, are another type of intangible asset. These include licences for a bus line or taxi service; the use of public land for telephone, power, and cable television lines; and the use of airwaves for wireless devices, radio, or TV broadcasting. These can have finite or indefinite lives and can be valuable. Governments and other organizations can grant licences. For example, in 2021 the Entertainment and Sports Programming Network (ESPN) purchased the rights to broadcast some of the National Hockey League games for seven years.

Question 24

goodwill

Answer 24

Goodwill is an asset representing the future economic benefits arising from the purchase of a business that do not relate to other identifiable assets, but rather, relate to the benefits provided by the business as a whole. Goodwill represents the value of favourable attributes that may include exceptional management, a desirable location, good customer relations, skilled employees, high-quality products, fair pricing policies, and harmonious relations with labour unions. Goodwill cannot be identified and sold (or licensed or rented) separately because it relates to the business as a whole. Goodwill has two characteristics: It has no physical substance, and it is not an identifiable asset (which distinguishes it from intangible assets). Goodwill is reported separately in the non-current assets section of the statement of financial position.

Question 25

goodwill

Answer 25

If goodwill can only be identified with the business as a whole, how can a company determine its value? Certainly, a number of businesses have many of the factors cited above, but if they are generated internally, measuring the value of this goodwill would be difficult and subjective, reducing the reliability of the financial statements. For this reason, companies record goodwill only when they purchase other companies, not when it is internally generated. When goodwill is purchased, it can be measured objectively because an independent valuation of the entire business can be determined.Companies calculate goodwill by comparing the amount paid to acquire the business (purchase price) with the fair value of its net identifiable assets (assets less liabilities) as shown inIllustration 9.30.

Question 26

formula for calculating goodwill

Answer 26

purchase price- fair value of net identifiable assets= oodwill

Question 27

vBecause goodwill has an indefinite life, it is not amortized. However, under IFRS, Dome will perform an annual impairment test on the goodwill (like the one performed on indefinite-life intangibles). If any impairment loss results, it cannot be reversed because doing so would mean recognizing internally generated goodwill, and we know that internally generated goodwill cannot be recognized. Cargojet also reports goodwill, which it tests annually for impairment or more frequently if there are indicators of potential impairment.ASPE Under ASPE, a company will perform an impairment test of goodwill only if events or circumstances indicate that the goodwill may be impaired. Note that goodwill cannot be negative.

Answer 27

Because goodwill has an indefinite life, it is not amortized. However, under IFRS, Dome will perform an annual impairment test on the goodwill (like the one performed on indefinite-life intangibles). If any impairment loss results, it cannot be reversed because doing so would mean recognizing internally generated goodwill, and we know that internally generated goodwill cannot be recognized. Cargojet also reports goodwill, which it tests annually for impairment or more frequently if there are indicators of potential impairment.ASPE Under ASPE, a company will perform an impairment test of goodwill only if events or circumstances indicate that the goodwill may be impaired. Note that goodwill cannot be negative.

Question 28

goodwill je

Answer 28

inventory
buildiing
land
Good will
mortgage
cash