Chapter 12 - Intangible Assets and Goodwill Flashcards
What are the three characteristics of an intangible asset and goodwill?
- Identifiable
- Non-monetary
- No physical substance.
What determines the identifiable criterion?
It is separable or arising from contractural or legal rights.
When do we recognize an intangible asset?
- It is probable that future benefits attributable to the asset will flow to the entity.
- We can measure the cost of the asset.
Why is goodwill not apart of intangibles? What are examples of intangibles?
It is not separately identifiable. Examples include trademarks, brand names, customer lists, copyrights, patents, franchise and licensing agreements, patents, and development costs.
How do we value an intangible in a non monetary asset?
It is valued at the fair value of the consideration given up.
How do we initially value the intangible assets when purchased?
At cost, which is the purchase price less rebates or discounts, and including import duties and non refundable taxes, and any costs directly attributable to the preparation of the asset for its intended use.
What are examples of directly attributable assets?
Wages, professional fees, and testing costs.
What are costs that are not directly attributable?
Advertising cost, general overhead, administration, and the costs of conducting business in a new market.
What do we do it the cost of the asset has delayed payments?
Expense the interest portion.
How do we value intangible transactions if we give up shares or other non-monetary considerations in IFRS? What if it is IFRS?
We value it at the value of the intangible received, but if that is not available we will value it at the value of the asset given up. ASPE allows it to be valued at either the, just whichever is the most determinable.
What financial statement must be prepared when the one company takes over another? What does the company purchase?
Consolidated financial statements. They purchase the carrying amount of the underlying assets and the underlying liabilities, but also the excess fair value of any of those assets.
What is a common occurrence when firms purchase another firm?
It is quite often the there are intangibles that have yet to be recognized like customer lists or in process R&D. The excess price paid over the fair value of the underlying assets / liabilities and the excess fair value is goodwill.
Under IFRS, how do we recognize and measure internally developed assets? How does ASPE value these types of transactions?
These must have benefits that we can measure. They are measured by the costs that were required to acquire them. ASPE values them similarly, but they can opt to expense it if they wish.
Describe the treatment of internally generated goodwill.
Internally generated goodwill is not recognized as an asset because it is not an identifiable resource. The cost of maintaining and creating the internal goodwill is difficult to distinguish from the creation of identifiable intangible assets.
What is the most common internally developed intangible? How do we determine whether to recognize an internally generated intangible asset?
Development costs. Classify them into both a research phase and a development phase.
What happens during the research phase?
During the research phase no asset should be recognized as the firm is acquiring knowledge about the project, and there is no commercially viable product.
What happens during the development phase? When does the development phase end?
The company has translated the research and knowledge into a new process and developed them for commercial production. The development phase ends when the commercial production begins.
