FAR 9 - INTANGIBLES & GOODWILL

Question 1

When is revenue recognized on franchise agreements?

Answer 1

Under franchise agreements, revenue should be recognized when the franchisor has substantially performed all material services and conditions, and collectability from the franchisee is reasonably assured.

Baker performed all services and there appear to be no concerns about collectability, Baker should recognize the full amount of revenue in the current year. The full amount is the present value of the consideration given and expected, or $59,000 (25,000 + 34,000 = 59,000).

Present Value of note or cash + cash given are recognized if all services & conditions have been met by the franchisor

Question 2

Under IFRS, in order to be considered an identifiable intangible asset must be/?

Answer 2

Under IFRS, an intangible is considered identifiable if it is separable, indicating that it can be sold, leased, given, or otherwise disposed of by the entity without liquidating the entity itself. It is also considered identifiable if it arises from a contractual or legal right.

Question 3

IFRS Revaluation Method Accounting for Intangible Assets

Answer 3

Under the revaluation model allowed by IFRS, assets are periodically revalued and adjusted to their fair values. Revaluation is required to be done relatively frequently, generally at least every three years, but is not required annually. In between revaluation dates, the asset is amortized and may be written down due to impairment.

Question 4

Intangible Assets come in 3 basic forms, what are they?

Answer 4

1. Knowledge
2. Legal rights & identifiable assets
3. Goodwill (unidentifiable intangible)

Question 5

How are intangible assets amotrized?

Finite Useful Life Intangibles

&

Indefinite Useful Life Intangibles

Answer 5

• Finite Useful Life Inangibles
  
  • ​DepreciatedoverUseful Life
• Indefinite Useful Life Intangibles
  
  • ​NOT amortized,testedannually forImpairment

Question 6

Software Costs

Answer 6

• Computer Software developed to Sell, Lease or Market as a Product
• Cost prior to technological feasibility are expensed as R&D
• Costs associated with converting a technologically feasible program into final commercial form are capitalized
• Costs after software sales are inventory costs

Question 7

Goodwill Impairment Testing

2 Step Process

Answer 7

1. Determine if CV > FMV
2. FMV Reporting Unit > FMV Asset ( how much of loss)

Journal Entry:

DR: Impairment Loss

CR: Goodwill

Question 8

How are Intangible assets accounted for under IFRS?

Answer 8

1. Cost Model
2. Revaluation Model

Question 9

Patent

Franchise

Trademarks

Copyrights

Answer 9

• Patents - Exclusive legal right to a product or manufacturing process.
  
  • Capitalize cost of obtaining legal protection
  • Include costs of successful defense in court
  • Unsuccessful defense are expensed
  • Do not include R&D costs
• Franchise - Right to operate a business under someone elses name.
  
  • Legal life based on the contract
  • Initial franchise fee is capitalized and amortized over the term of the franchise
  • payments based on revenues or earnings are expensed as incurred
• Trademarks - Exclusive right to an identifying name for a product or process
  
  • Legal life indefinite. Shorter of legal life or useful life.
• Copyrights - The exclusive legal right to an artistic work such as a book or music.
  
  • Legal life of the creator + 70 years