B4 M1 Intangibles Flashcards
Good will impairment loss calculation for indefinite life intangibles
Impairment loss = FV - BV
Provide examples of items capitalizable as Intangibles
Legal fees to obtain patent
Provide examples of Research and Development costs expense
-Includes equipment purchased for current (if with future use - depreciate over useful life)
-R&D for current projects
-Costs for prototype product
When should a company should recognize goodwill in its balance sheet?
When purchase price exceeds the FMV of the identifiable net assets
of the acquired company
What are the steps to determine goodwill impairment?
- Qualitative = > 50% chance
that FV<CV, do Quantitative - Quantitative = If FV < CV,
FV - CV = IL (ONLY up to Goodwill!)
[Reversal prohibited! unless held for disposal]
What are the type of R&D Expenses and how to record in the books?
Research = discover, Development = improve/create R&D = EXPENSED! Few exceptions:
o Future alternative use = capitalized. [Depreciation only =
expensed!]
o R&D on behalf of others = Operating expense [Other
company will put as R&D)
o “In Process” R&D in purchase = capitalized
o Not R&D = Admin costs, routine/periodic design, marketing
research, quality control
How do you recognize Start up costs and legal fees?
Start-up costs = Expense [Ex: organizational costs]
Unsuccessful Legal Fees =Expense
Successful Legal Fees = CAPITALIZE [Ex: legal costs to file]
How to recognize Computer Software Development Costs in books?
Computer Software Development Costs to be sold, leased, or licensed:
o Before Tech Feasibility** = Expense
o After Tech Feasibility** = CAPITALIZE! & amortize [On BS at < of CV or NRV*]
*NRV = SP – cost to sell
** Technological feasibility is established upon completion of a detailed program design or working model
How to amortize computer Software development
Amortized over > of Straight Line (Capitalized/economic life) or % of revenue**
**% revenue = [Total capitalized $ x (Current gross revenue for period / total projected gross revenue for product)]
What does technological feasibility mean?
Technological feasibility is established upon completion of a detailed program design or working model. This is a point after when you can capitalize software development costs
What are capitalizable software development costs after tech feasibility (software for internal use)
- Costs incurred after the prelim project state
- Upgrades/enhancements such as:
a. Direct costs of materials and services
b. Costs of employees directly associated with the project
c. interests costs incurred for the project
How is revenue recognized for internally developed software (for internal use) which is subsequently sold to outsiders?
Proceeds received (ex. license of software) should be applied first to the Carrying amounts (CA) of the software (until it is totally written off)
Dr. AR x
Cr. CA of the Asset x
Once the CA of the asset is totally written off, you can then recognize revenue.
DR. AR
CR. Revenue
