F3 - M6 - Intangibles With Finite Lives Flashcards
When calculating the amount the intangible asset needs to be capitalized by, are legal fees to acquire or defend the patent included in this capitalization? What about registration fees?
Yes to both with an exception to the defense of a patent.
These only are capitalized if you successfully defend a patent. If you lose, they are not. The cost is then added to the patent if you successfully defend it, and expensed if not.
If you purchase a franchise, how is that included on the financial statements.
If you purchase a franchise, the amount you purchased the franchise for will be an intangible asset, and amortized over the useful life of the franchise.
If there is an agreement where the franchisee has to pay the franchisor, a certain amount of their operating revenue each and every year, that amount will not be capitalized but rather an expense to the franchisee.
When it comes to impairment testing, how does that work and what intangible assets does it apply to?
For impairment testing, you compare undiscounted future cash flows to the carrying value of the asset. If the carrying value is less than the discounted cash flows you have an impairment.
For intangibles this only applies to intangibles with a limited useful life such as patents.
Are research and development costs capitalized as intangible assets?
No, these are expensed immediatley on the income statement.
Are development costs of a new product or idea capitalized?
No, development costs are a direct expense.
When you acquire an intangible asset with either cash or by transferring property, how is that intangible asset reported on the balance sheet?
You would record the intangible at the cost you paid for it, and if property was transferred, you would record the intangible for the fair value of the property transferred. So if the property had a fair value of 50,000 then the intangible asset would be recorded at 50,000.
When assigning a useful life to an intangible asset, how would you choose which useful life to assign it to?
Either the lower of the legal life, or the economic life, which is the life that the asset would get positive cash flows.
This also includes if you want to sell the asset before the end of the legal life. So if the legal life is 50, but you want to sell in 5, then you pick 5.
So if the legal life is 30 but the economic life or the life when this asset would get positive cash flows is 25, you choose the lessor which is 25.
Unless the method is stated by the company, what depreciation method should be used for intangible assets is no method is determined?
Straight Line
When is there a situation when you can’t amortize an intangible asset?
If the intangible asset does not have an definite life, then you cannot amortize.
So if you can not determine the useful life, then you cannot amortize.
Are organization costs expensed immediately or capitalized for GAAP?
Expensed immediately.
