Chapter 12 Flashcards
If the intangible asset is PURCHASED, how should it be valued on the B/S?
Recorded/capitalized at cost:
Capitalize all costs to acquire/prepare for use (same as fixed assets)
If the intangible asset is CREATED, how should it be recorded on the B/S?
Only DIRECT costs can be capitalized (legal costs); other costs = period expenses
What Intangibles are amortized?
Those with a limited life. Ex: copyrights
Those with unlimited life are checked for impairment and written down
R&D costs: expense or capitalize?
Expensed when incurred
New amortizable base when value and useful life changes
Take the original base and subtract all the amortization. Then add the new value. That’s the base
Then that divided by the new useful life gives you the amortization expense
Amortization JE
Amortization Expense
Patent
Goodwill:
Value paid above the net identifiable assets.
Future economic benefits expected to arise from value received in the purchase of another company.
Net Assets
Assets - Liabilities
(Or equity)
Goodwill: Debit or Credit?
Debit never Credit
Goodwill JE
1) Debit: all assets at fair value
2) Credit: all liabilities and the payment (cash, A/P, or N/P)
3) Debit (Plug): Goodwill
What if you buy a company for less than the FV of net assets?
Credit or recognize Gain
Indefinite life intangible impairment:
Fair Value test
No recoverability test because future cash flows are immeasurable
Goodwill Impairment 2 step process:
1) compare FV to total BV (including goodwill). If FV < BV go to step 2.
2) compare implied goodwill (FV offer -FV of net identifiable assets) to goodwill BV
Impairment loss = Goodwill BV - (FV offer - FV net assets)
Other expensed costs:
1) Start up costs
2) Initial operating losses (bc it’s hard to est future benefits; comparability)
3) Advertising costs
4) Computer software costs
