FAR - Financial Statement Acct - Intangibles Flashcards
Intangible asset
Intangible asset classifications
impairment test for definite life intangibles?
method is used to amortize intangible assets?
types of intangibles?
long-term asset lack physical substance, useful life > 1 yr, used in operation of business
1) definite life: all are identifiable (trademark, copyright, patent - finite life timeline)
2) indefinite life: subdivided into identifiable and goodwill (infinite life timeline)
Impairment if BV > R (recoverable cost) = potential impairment, then to figure the impairment loss -> BV - FV
SL method, unless another appropriate systematic method is available
marketing - trademark, domain names, etc.
customer - customer list, contract w/customers, etc
artistic - copyrights, etc.
contract - franchise, licensing, broadcast, etc.
tech - patents, etc.
goodwill - FV > identifiable net assets from business combo
impairment test for indefinite intangibles?
costs can be capitalized to an intangible asset?
conditions is the residual value of a definite life intangible not assumed to be zero?
When can impairment of an intangible be recovered?
amortization of definite life intangibles recorded?
determination/computation for definite intangible impairment loss is same as PPE held for use
Impairment if BV > FV = potential impairment, then to figure the impairment loss -> BV - FV
prices paid to other parties
1) entity has a commitment from 3rd party to purchase intangible asset at the end of its useful life;
2) residual value can be determined by reference to an exchange transaction in an existing market for that asset and that market is expected to exist at the end of the asset’s useful life.
Impairment of an indefinite or definite life intangible CANNOT be recovered.
DR: Amortization expense
CR: Intangible asset (intangibles don’t have an accumulated amortization account/contra account)
true
true/false
successful defense costs are capitalized to patent and amortized
patent registration fees are immediately expensed opposed to capitalized
all intangibles subject to impairment and only definite life intangibles are amortized
Intangibles are plant assets without physical substance
development stage company (startup) must follow GAAP
internally developed intangibles costs are expensed EXCEPT for registration costs/legal fees are capitalized
amortization of an intangible is on useful life, NOT legal life
perpetual franchise right is not subject to amortization because perpetuality = indefinite life intangible = NOT amortized!
true
true
true
false, they are operational assets.
true
true
true
true
true/false
cost to acquire a patent from another party is expensed immediately as a research and development expense
cost of an unsuccessful defense of a patent is included in the patent account and amortized over the remaining useful life of the patent
Although a trademark has a definite legal life, it can be renewed indefinitely and, as such, the cost of the trademark should not be amortized unless the life is considered to be limited.
worthless intangible will be written off as a loss using the carrying value
increase in CSV decreases insurance expense because the same amount of cash paid must be allocated between the two accounts. The increase in CSV does not affect investment income or deferred charges.
Organization costs are those incurred in the formation of a corporation. These costs should be expensed as incurred.
formula to compute insurance expense (CSV)
if cash div rec’d to increase CSV, take total total insurance expense - div rec’d = insurance expense, make separate entry
DR: CSV cash div amount
CR: Ins. exp cash div amount
Upon the death of the insured employee, the company recognizes a gain for the excess of proceeds received over CSV.
false, it’s capitalized
costs are expensed and intangible is written off as a loss
true
true
true
true
true
Cash paid − (Ending CSV − Beginning CSV) − Cash divs. received
true
on date of death, company reports proceeds rec’d - CSV
intangible impairment losses cannot be reversed; however, PPE impairment losses can be reversed to the extent of the previous loss
Development stage enterprises capitalize the same costs as established on-going enterprises. Thus, only the leasehold improvements, equipment, and furniture would have been capitalized.
shorter of the lease term and useful life of the leasehold improvements is used for amortization because leasehold improvements revert to the lessor at the end of the lease term.
true
true, admin costs and R/D costs are expensed immediately.
true
leasehold improvements are amortized according to the lesser of the useful life or lease term whereas other assets such as PPE owned by lessee will not be amortized.
amount of cost to be capitalized or deferred is the amount of cost that is recoverable in future periods.
When the intangible asset can be renewed indefinitely, and the company has the positive ability and intent to continuously renew, then the intangible asset is an indefinite life intangible. Indefinite life intangibles are not amortized, but are tested for impairment on an annual basis.
Start-up costs are expensed as incurred.
true
true
true
true
Goodwill is the only unidentifiable asset that can be capitalized and expenses to maintain GW are not capitalized
qualitative step (pre-step), is optional
Goodwill is based on the expectation that the purchased firm will have higher earnings than would otherwise be expected of a firm with its assets and capital structure.
Goodwill is allocated to reporting units which are operating segments of the business or one level below. Goodwill is also tested for impairment at the level of the reporting unit.
FV of reporting unit FV, do 2 step quantitative measurement
goodwill impairment loss is the implied goodwill less the recorded goodwill
Goodwill is recognized and measured at the date of a business acquisition. Goodwill is measured as the difference between the consideration transferred in a business acquisition and the fair market value of the identifiable net assets acquired.
true
true
true
true
true
true
true
true
implied value of GW = FV of reporting unit - FMV of assets/liabilities (1st step)
(2nd step) difference between recorded GW and implied GW = impairment loss (cannot be reversed)
true
true
DR: Impairment loss
CR: Goodwill
GAAP/IFRS GW impairment testing levels?
IFRS report intangibles @ what levels?
IFRS, impairment loss recoverable up to what amount?
IFRS, the impairment of goodwill can be reversed in subsequent periods
IFRS, intangibles can be revalued to fair market value on an asset by asset basis, not the entire class of intangible assets.
GAAP - reporting unit
IFRS - cash generating unit
FMV or Cost, GAAP not permitted FMV for intangibles
recovery of impairment loss is limited to CV had the impairment not occurred.
False
False
true/false
The greater of fair value less cost to sell or value in use is the recoverable amount according to IFRS.
IFRS impairment loss = CV > recoverable cost, new CV = recoverable cost.
CV (all assets) of the CGU is compared to the recoverable amount
Under IFRS impairment losses associated with identifiable intangibles are recoverable. Impairment losses associated with goodwill are NOT recoverable.
useful life/amort method must be reviewed annually under IFRS
TRUE
