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Financial Acct Systems 2 > Ch 12 > Flashcards

Ch 12 Flashcards

0
Q

ESG

A

Sustainability report

Has 3 major categories: environmental, social and
Corporate governance

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1
Q

Integrated report

A

Report where company discloses data on dozens of metrics

Beyond conventional balance sheet accounting

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2
Q

2 main characteristics of intangible assets?

A

1 they lack physical existence

2 they aren’t financial instruments

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3
Q

Intangible assets derive their value from…

A

The rights and privileges granted to the company using them

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4
Q

How are purchased intangibles recorded?

A

Companies record at cost intangibles purchased from

Another party

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5
Q

What are 5 typical costs included in the valuation of intangible assets?

A 
1 all acquisition costs 
2 expenditures to make intangible asset ready for intended use
3 purchase price
4 legal fees
5 incidental expenses
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6
Q

How is the cost of the intangible determined when it is acquired in an exchange for stock or other assets? 2 possibilities

A

Fair value of the consideration given

Or fair value of intangible received (whichever is more evident)

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7
Q

Business combination

A

Transaction where purchaser obtains control of 1 or more businesses

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8
Q

What do companies only capitalize when developing the intangible?

A

Only direct costs incurred such as legal fees

The rest is expensed

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9
Q

Amortization

A

Allocation of cost of intangible assets in systematic way

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10
Q

Which types of intangibles are and are not amortized?

A

Limited useful life intangibles are amortized

Indefinite useful life intangibles are not amortized

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11
Q

Evaluating limited life intangibles for impairment

A

Impairment loss should be recognized if carrying amount

Of intangible is not recoverable and exceeds its fair value

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12
Q

Indefinite life intangibles

A

If no factors legal, regulatory, contractual or competitive
Limit useful life of intangible

No foreseeable limit in period of time intangible is expected
To provide cash flow

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13
Q

Impairment test for limited life intangibles? How often should it be performed?

A

Only fair value test is performed, not the recoverability test

Should be performed annually

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14
Q

6 major categories of intangible assets?

A 
1 marketing related intangible assets
2 customer related intangible assets
3 artistic related intangible assets
4 contract related intangible assets
5 technology related intangible assets
6 goodwill
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15
Q

Marketing related intangible assets, give examples

A

Used in marketing or promotion of products or services

Ex. Trademarks, newspaper mastheads,
Internet domain names and noncompetition agreements

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16
Q

Trademark AKA Trade name

A

Word, phrase or symbol that distinguishes or identifies

A particular company or product

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17
Q

Registration with the US Patent and Trademark Office provides legal protection for an…

A

Indefinite number of renewals for periods of 10 years each

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18
Q

Customer related intangible assets, examples

A

Result from interaction with outside parties

Ex. Customer lists, order or protection backlogs,
Contractual and noncontractual customer relationships

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19
Q

Artistic-related intangible assets

A

Involve ownership rights to plays, literary works, musical
Works, pictures, photographs, video and audiovisual material

Copyrights protect these ownership rights

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20
Q

Copyright, how long are they granted for?

A

Federally granted right that all authors, painters, musicians,
Sculptors and other artists have in their creations and
Expressions

For the life of the creator plus 70 years

21
Q

Contract related intangible assets, examples

A

Represent value of rights that arise from contractual arrangements

Ex. Franchise, liscensing agreements, construction permits,
Broadcast rights, service or supply contracts

22
Q

Franchise

A

Contractual arrangement where franchiser grants franchisee
The right to sell products or services, use certain trademarks,
Or perform certain functions in designated geographic region

23
Q

Liscences or permits, examples

A

Operating rights

Ex. Fox, CBS, NBC paid $27.9 billion for the right to
Broadcast the NFL over 8 years

24
Q

A company should amortize the cost of a franchise or liscense with a…

A

Limited life as an operating expense over the life of the

Franchise

25
Q

Technology-related intangible assets, examples

A

Relate to innovations or technological advances

Ex. Patented technology, trade secrets granted by US
Trademark and Patent Office

26
Q

Patent

A

Gives holder exclusive right to use, manufacture and sell
Product or process for period of 20 years without
Interference by others

27
Q

1 Product patents, 2 process patents

A

1 Cover actual physical products

2 Govern process of making products

28
Q

When protecting a patent a company must expense as incurred…

A

Any R&D costs related to development of product, process,

Or idea that it subsequently patents

29
Q

Amortization: patents

A

Companies should amortize cost of patent over its legal
Life or it’s useful life (period where benefits are received)

Whichever is shorter

30
Q

Goodwill AKA plug, gap filler, master valuation account

A 
Excess of cost of purchase over fair value of identifiable
Net assets (assets less liabilities) acquired
31
Q

Internally created goodwill

A

Should not be capitalized in accounts

32
Q

Capitalizing goodwill only when it is purchased in an arms length transaction and not capitalizing any goodwill generated internally is another example of…

A

Faithful representation winning out over relevance

33
Q

Master valuation approach: goodwill

A

Difference btw [(cost of assets or enterprise acquired) +

fair value of net identifiable assets)] - (liabilities

34
Q

Companies that recognize goodwill in a business combination consider it to have an…

A

Indefinite life and should not amortize it

35
Q

Companies adjust goodwill’s carrying value only when…

A

Goodwill is impaired

36
Q

Bargain purchase

A

When purchaser pays less than fair value of the net
Identifiable assets

Recorded As a gain for purchaser

37
Q

Impairment, what do they apply to?

A

Carrying amount of long lived asset (property, plant, equip.
Or intangible asset) is not recoverable

Therefore write-off needs to be recorded

Apply to property, plant and equip. And limited life intangibles

38
Q

Recoverability test

A

Company estimates future cash flows expected from use

Of asset and eventual disposal

39
Q

Fair value test

A

Test measures the impairment loss by comparing the
Asset’s fair value with it’s carrying amount

Impairment loss = carrying amount of asset
- fair value of impaired asset

40
Q

Restoration of impairment losses

A

Companies may not recognize restoration of previously

Recognized impairment loss

41
Q

Research and Development Costs

A

Frequently result in development of patents and copyrights

Companies must expense all R&D costs when incurred

42
Q

IFRS VS GAAP: Research and Development

A

IFRS requires capitalization of appropriate development

Expenditures, this conflicts with GAAP

43
Q

5 costs associated with R&D activities

A 
1 materials, equipment and facilities
2 personnel
3 purchased intangibles
4 contract services
5 indirect costs
44
Q

Research and Development accounting treatment: materials, equipment and facilities

A

Expense entire costs unless items have alternative future
Uses

If alt. future uses, carry items as inventory + allocate as
Consumed or capitalize and depreciate as used

45
Q

Research and Development accounting treatment: personnel

A

Expense as incurred salaries, wages and other related

Personnel costs in R&D

46
Q

Research and Development accounting treatment: purchased intangibles

A

Recognize and measure at fair value

Account with respect to limited or unlimited life of intangible

47
Q

Research and Development accounting treatment: Contract services

A

Expense costs with services performed by others in

connection with R&D

48
Q

Research and Development accounting treatment: indirect costs

A

Include reasonable allocation of indirect costs in R&D
Costs

except general and administrative cost which must be clearly
Linked

49
Q

Startup costs, examples

A

Incurred for one-time activities to start new operation

Ex. Open new plant, introduce new product or service,
Conduct business in new territory

50
Q

Organizational costs

A

Legal and state fees incurred to organize a new business

Entity

51
Q

Presentation of intangibles on the balance sheet?

A

The balance sheet should present all intangible items

separately except goodwill

Financial Acct Systems 2 (22 decks)

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