F3 - M6 Intangibles

Question 1

How are franchise fees related to intangibles, how do you amortize them

Answer 1

Franchise fees are unrelated to intangibles balance, Franchise is a balance sheet account that goes down every year. Year 1 will be franchise cost minus year 1 amortization

Question 2

How are RD, development costs and patent costs treated

Answer 2

RD costs are expensed immediately, development costs are a direct expense and patent costs are intangibles

Question 3

How do legal fees impact amortization

Answer 3

When legal fees are incurred only successful defensivies will add into the amortization basis

Question 4

How do you calc amortization

Answer 4

Cost of intangible (/) economic useful life. Should be amortized by lesser of legal life and economic life.

Question 5

What do you amortize? Cash paid or FMV

Answer 5

You amortize what you pay for the asset not for the FMV.

Question 6

What do you amortize if asset is going to be used forever

Answer 6

If intangible is expected to be used indefinitely than it will have -0- amortization cost.

Question 7

How is a unsuccessful patent treated

Answer 7

If legal defense for patent is unsuccessful than it is expensed

Question 8

What do you amortize if asset plans to be sold

Answer 8

If intangible plans to be sold within x years you only amortize over those years

Question 9

What are the intangibles that are subject to impairment testing

Answer 9

Patents are the only intangibles that are subject to impairment testing

Question 10

What intangible has an indefinite life

Answer 10

Goodwill has an indefinite life

Question 11

What happens when patent has been impaired

Answer 11

If patent has been impaired all the sudden you will charge it against NI. Dont amortize over the year that it is been impaired.

Question 12

What else is included within the intangible asset balance

Answer 12

Copyrights and trademarks are included within the intangible asset balance

Question 13

How are start up costs treated

Answer 13

GAAP requires start ups regardless if it is organizational costs be expensed as incurred

Question 14

Intangible asset with a step up in basis

Answer 14

Original value (+) cost to extend life is the new base. New base (/) (lesser of legal and estimated life) = Amortization.

Question 15

When intangible is held for sale do you amortize the year that is held for sale for

Answer 15

No you do not

Question 16

Intangible asset with a step up in new economic life

Answer 16

economic life is NOT added to the original life if a new cost is spent to extend. Amortize the lesser of the new life vs the legal and economic life