F3 - M7 - Intangibles

Question 1

Intangible Assets

Answer 1

Long lived legal rights; used in operations and provide benefits over several accounting periods

Lack physical substance and provide future economic benefit

Finite life - AMORTIZED
Patent - right to use, make and sell; 20 yr; AMORTIZED
Copyright - right to produce and sell published work; creator plus 70; AMORTIZED
Franchise - right to do business in a certain area; defined by contract; AMORTIZED

Indefinite Life - Not Amortized
Goodwill - purchase company for more than FV of net assets; does not expire; Not Amortized
Trademark - Display work or symbol that identifies com; can be renewed every 10 years; Not Amortized

Question 2

Classification of Intangible Assets

Answer 2

Patents, copyrights, franchises, trademarks and goodwill

Identifiable such as patents, copyrights, franchise, etc

Nonidentifiable such as goodwill

Question 3

Acquisition = Capitalize or Expense

Answer 3

Purchased Intangible Assets = CAPITALIZE AT COST

Internally Developed Intangible Assets = EXPENSED

Question 4

Internally Developed Intangible Assets

Answer 4

Expensed

• Trademarks
• Goodwill from advertising
• The cost of developing, maintaining or restoring goodwill

EXCEPTION (identifiable)

• Legal fee “successful defense” (unsuccessful is expensed)
• Registration or consulting fees
• Design costs
• Other direct costs to secure asset

Question 5

Separability

Answer 5

Depends if asset can be separated from entity

Separated = patents

Unseparated = tradename or goodwill

Question 6

IFRS

Answer 6

R&D INTANGIBLE arising from DEVELOPMENT can be capitalized

Question 7

Capitalization of Costs

Answer 7

Acquired from other enterprises or “arms-length” transactions

Cost measured by:

• Cash disbursed or FV of assets distributed
• PV of amounts to be paid for liabilities
• FV of consideration received for stock issued

Question 8

Amortization

Answer 8

Must have a finite life (expire), must be amortized by systematic changes to income; matching principle

Shorter of estimated life or remining legal life

Straight line depreciation

Change in Useful Life = change in estimate, prospective, recalculate

goodwill does NOT have an finite life

Sale of Intangible Assets = calculate gain or loss

Question 9

Amortization - US GAAP Valuation

Answer 9

Finite life reported at cost less amortization

Question 10

Amortization - IFRS Valuation

Answer 10

Cost Model = cost adjusted for amortization and impairment

Revaluation Model = after cost, revalued to fair value, performed regularly

• Loss in I/S, If prior gain OCI
• Gain in OCI, if prior loss I/S
• Impairment; any surplus to zero

Question 11

Franchisee Accounting

Answer 11

Initial Franchise Fee’s = Intangible asset and amortize; expected life of franchise

Capitalize = Cash, FV asset, PV note

Continuing Franchise Fees = Expense as incurred

Question 12

Start Up Costs

Answer 12

Expense when incurred - Formation of a corporation

Question 13

Research and Development Costs

Answer 13

US GAAP = Expense

PP&E = Capitalize
- Materials, equipment or facilities

Items NOT R&D
- periodic design changes, marketing research, quality control, reformulation of chemical compound

Question 14

Computer Software Development Costs

Answer 14

Sold, leased or licensed?

Expense
- planning, design, coding, testing, UNTIL tech feasibility

Capitalize Cost
- planning, design, coding, testing, AFTER tech feasibility

Release for Product
- Amortization begins

Question 15

Computer Software Internally or Obtained ONLY for internal use

Answer 15

Accounting for Costs
Expense Costs - Incurred for preliminary project state
Capitalize Costs -Incurred AFTER tech feasibility

Amortization on straight-line basis

Question 16

Expensed

Answer 16

Research

Development

Start of Expenses