FAR 3 - M7 INTANGIBLES

Question 1

How do you treat organization costs in the FS using GAAP?

Answer 1

expensed immediately

If TAX basis - amortize

Question 2

BEFORE the establishment of technological feasibility, the coding and testing costs are amortized or expensed?

Answer 2

EXPENSED

Question 3

AFTER the establishment of technological feasibility, the coding and testing costs are amortized or expensed?

Answer 3

CAPITALIZED

Question 4

How do you treat equipments used for R&D if it can only be used for that purpose?

Answer 4

Expensed immediately

Question 5

How do you treat equipments used for R&D if it has alternative uses?

Answer 5

Capitalize over its useful life

Question 6

If expected future cash flows is LESS than the carrying value,

Answer 6

Impairment loss or expense needs to be recognized

Question 7

If an intagible, say trademark has legal life of 5 yrs, nut can be renewed every 10yrs; and expects to renew indefinitely, do you record amortization?

Answer 7

NO

Amortization is only recorded for intangibles with definite life

Question 8

How to amortize capitalized costs related to software projects

Answer 8

S/L or
% of revenue approach
whicever is GREATER

EX 40000 software devt cost
2 yrs economic life
est to generate sales of 500,000
sold 300,000 in Yr1

Amort S/l = 40000/4 yrs = 20000
% of revenue = 300 sold
————- x 40000 = 24000
500 est sales

Amort to record = 24000

Question 9

How do you treat internally developed intangible assets?

Answer 9

EXpense it except if the costs can be specifically identified such as design costs = capitalized