F3 M7 Flashcards
Patents, copyrights, franchises, trademarks, and goodwill are all considered intangibles
Purchased intangible assets are capitalized and internally developed ones (research and
development costs) are expensed
Exception: Certain costs associated w/internally developed intangibles that are
specifically identifiable can be capitalized (ex: legal fees, costs related to
successful defense of a client, design costs of a trademark, and other direct costs
to secure an asset)
If an intangible has an indeterminable life, there is a yearly impairment test
Cost of intangible may either be determined by the FV of consideration given or by the
FV of the property acquired, whichever is more evident
The remainder of total amt of intangible assets paid for - costs paid for them = cost to
unidentifiable assets
Amortize everything that is not internally developed, is not goodwill, or does not
have an indefinite life
A patent is amortized over the shorter of its estimated life or remaining legal life
Expenses that increase useful life of an asset require an adjustment to the calc of annual
amort (ex: asset is 96k and it costs 50k to increase the useful life of the asset. The asset
has 8 more years of legal life. 96 + 50 = 146/8 = amort exp for the year)
Finite life intangibles are reported at costs - amort - impairment
Indefinite life intangibles are reported at costs - impairment
In franchise accounting, initial franchise fees are capitalized while continuing franchise
fees (ex: Mgt training) are expensed
Organizational, one-time expenses incurred in the formation of a corp aren’t capitalized
as intangible assets, they are expensed immediately (ex: introducing a new product or
service, opening a new facility, and initiating a new process in an existing facility)
Organizational costs for corps are treated the EXACT opposite as for franchises
All organizational costs and start-up costs are expensed as incurred
Research and development costs are expensed as incurred
Exceptions that must be capitalized: Materials, equip, or facilities that have alternative
future uses (depreciate over their useful life, NOT the life of the R&D project) and R&D
costs done for other firms in a contractual agreement
However, the depr costs for the year for the equipment w/alternative uses is included in
the R&D costs for a given year
Marketing research, quality control testing, legal fees to obtain a patent, and
reformulation of a chemical compound are not R&D costs
Consulting fees paid to outsiders for R&D costs are included in R&D exp
Testing in search of process or product alternatives, redesign of a product prerelease,
and costs for training/maintenance are examples of R&D costs
Computer software development costs are expensed and capitalized (depends on if
technological feasibility has occurred)
Expense costs (planning, design, coding, and testing) incurred until technological
feasibility has been established for the product (these are all R&D costs)
Capitalize costs (coding, testing, and producing product masters) incurred after
technological feasibility has been established up to the point the product is released for
sale (total capitalized amt / estimated economic life)
Technological feasibility is established upon completion of a detailed program design or
working model
For software development costs, money spent after the preliminary product stage is still
considered to be in the stage before technological feasibility, so the costs are expensed
