Chapter 12: Intangible Assets

Question 1

Intangible Assets

Answer 1

Future benefits that lack physical substance and generally result from legal or contractual rights (patents, copyrights, franchises)

Question 2

4 Characteristics of IA’s

Answer 2

1.) Generally a high degree of uncertainty regarding the amount and the timing of future benefits 2.) IA’s value is subject to wide fluctuations 3.) An IA may have value only to a particular company 4.) There is considerable uncertainly about the useful life of an IA

Question 3

General Rule

Answer 3

Externally acquired IA’s = generally capitalized; Internally Developed IA’s = generally expensed (except legal costs are capitalized)

Question 4

Research

Answer 4

Planned search or investigation aimed at discovery of new knowledge

Question 5

Development

Answer 5

Translation of knowledge into a plan or design of new a new product of process

Question 6

General Rule for R & D Costs

Answer 6

All R & D costs are expensed in the period they are incurred

Question 7

Exceptions to General Rule

Answer 7

1.) Costs have alternative future uses (separate economic value) 2.) Costs related to general and administrative activities 3.) Costs related to a contractual agreement with another company (full reimbursement costs) 4.) Some development costs in the extractive industries

Question 8

Goodwill

Answer 8

Exists only when purchased; 2 Step FV Test; Impairment loss cannot exceed CV of goodwill; no recovery of impairment losses if FV increases in subsequent periods