Chapter 7: Intangible Assets

Question 1

What is goodwill?

Answer 1

Goodwill is an intangible asset that is associated with the purchase of one company by another. It represents the value that can give the acquiring company a competitive advantage.

Question 2

Intangible asset:

Answer 2

Identifiable non-monetary asset without physical substance.

Question 3

What are usually the most important “value drivers” of companies?

Answer 3

Intangible assets are often the most important “value drivers” of a company.

Question 4

Foreign currency translation:

Answer 4

Foreign currency translation is used to convert the results of a parent company´s subsidiaries to its reporting currency. This is a key part of the financial statement´s consolidation process.

Question 5

Capitalization:

Answer 5

-An item is deemed capitalized when it is recorded as an asset instead of an expense. That implies that the expenditures will appear in the Balance Sheet and NOT in the Income Statement.

-Used to record costs/expenses in the Balance Sheet for the purpose of delaying full recognition of the expenses.

Question 6

What are the steps of the Capitalization Window?

Answer 6

1. Research Phase -> Expense
2. Development Phase -> Capitalization
3. Usage Phase -> Amortization (If finite useful life applies)

Question 7

Research:

Answer 7

Investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.

Question 8

Development:

Answer 8

Application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

Question 9

Capitalization Mnemonic:

Answer 9

-Probable future economic benefits;
-Intention to complete and use/sell;
-Resources adequate and available to complete and use/sell;
-Ability to use/sell the asset;
-Technical feasibility;
-Expenditures can be reliably measured.

Question 10

Examples of finite Intangible assets include:

Answer 10

-Patents
-Softwares
-Licenses

Question 11

Examples of intangible assets with indefinite useful lives include:

Answer 11

-Purchased brands
-Copywrites
-Labels
-Internet domains
-publishings
-Internal goodwill

Question 12

Once recognized, intangible assets can be carried at:

Answer 12

Once recognized, intangible assets can be carried at: costs less accumulated depreciation less any impairment losses.