Chapter 10 book Flashcards
operational assets that lack physical substance and often involve an exclusive rights to a company to provide a product or service
(patents, copyrightss, franchises, goodwill)
intangible assets
cost to acquire an asset is to distinguish the expenditures that produce future benefits are recorded how
first as an asset then expensed in future periods
costs to acquire an asset is to distinguish the expenditure that produce benefits only in the current period are recorded how
recorded as expenses
4 initial valuation of natural resources
- acquisition costs
- exploration costs
- development costs
4.restoration costs
the amounts paid to acquire the rights to explore for undiscovered natural resources or to extract proven natural resources
acquisition cost
for natural resources, expenditures such as drilling a wall, or excavating a mine, or any other costs of searching for natural resources
exploration costs
for natural resources, costs incurred after the resource has been discovered but before production begins
development costs
costs to restore land or other property to its original condition after extraction of the natural resource ends
restoration costs
obligations associated with the disposition of an operational asset (oil and gas exploration company are required to restore land to original condition after drilling)
asset retirement obligations (AROs)
adjusts the cash flows, not the discount rate, for the uncertainty or risk of those cash flows
expected cash flow approach
the increase in an asset retirement obligation that accrures as an operating expense
accretion expense
2 ways companies acquire intangible assets
- they PURCHASE intangible assets
- they DEVELOP intangible assets
purchased intangible assets are value at
thier original cost plus other necessary costs
the cost of an intangible asset is _____ over its useful life unless it has an indefinite useful life
amortized
internally developed intangible assets typically are _____
expensed
intangible asset equal to the fair value of the consideration given to acquire a company (the acquisition price) minus the fair value of the acquired companys identifiable net assets
goodwill
goodwill is not ?
amortized
when purchasing groups of assets for a lump sum that differ in value such as a factory with land, building, and equipment the allocation is made in proportion to the individual assets relative _____
fair value
if fair value is > book value
record a gain
if fair value < book value
record a loss
if we cant determine the fair value of either asset in exchange, the asset received is values at
the book value of the asset given
no gain or loss is recognized on an exchange when
fair value is not determinable
fair value can be used only in gain situations that have
commercial substance
occurs when future cash flows change as a result of the exchange
commercial substance
no gain is recognized if the exchange does not have
commercial substance
R&D costs are expensed when
immediately
R&D expense includes the
depreciation and amortization of assets used in R&D activites
costs incurred before the start of commercial production are
expensed as R&D
costs incurred after commercial production begins would be
expensed or included in the cost of inventory
filing and legal costs for patents, copyrights, and other developed intangibles are capitalized and amortized in
future periods
