FAR3 M7 - Intangibles Flashcards
Intangibles
Intangible Assets
Long-lived rights and competitive advantages developed or acquired by a business - i.e. patents, copyrights, franchises, trademarks.
Treatment of Purchased Intangibles
Capitalize at cost. Include legal and registration fees as part of asset.
Treatment of Developed Intangibles
Expensed when incurred because GAAP prohibits capitalization of R&D costs. Examples of items which must be expensed:
- Trademarks (except for design costs)
- Goodwill from advertising
- Cost of developing, maintaining, or restoring goodwill
Exceptions:
- Legal fees and other costs related to a successful defense of the asset (unsuccessful is expensed and test asset for impairment)
- Registration or consulting fees (when purchased)
- Design costs (i.e. trademarks - when purchasing)
- Other direct costs to secure the asset (when purchased)
IFRS Research & Development Costs
Research costs are expensed and development cost are capitalized.
Capitalization of Costs
- Measured by cash disbursed or FV of other assets exchanged
- PV of the amounts paid for liabilities incurred
- FV of consideration received for stock issued
- Unidentifiable intangible assets (residual $) = cost of group asset/company purchased - costs assigned to identifiable asset - liabilities assumed
- Cost of identifiable assets should not include goodwill
Amortization of Intangible
Only if the asset has a finite life. No amortization for infinite life. SL method. Any change of useful life is prospective change.
Sale of Intangible
Calculate gain/loss.
US GAAP Valuation
- Finite life assets reported at cost less amortization and impairment
- Infinite life report at cost less impairment
IFRS Valuation
- Cost Model: cost less amortization (finite assets only) and impairment
- Revaluation Model: initially valued @ cost, then revalued at FV at a subsequent revaluation date (must be revalued frequently to ensure carrying value does not differ from FV @ each reporting period). Revalued asset less amortization (finite assets only) and subsequent impairment.
IFRS Revaluation Loss
A revaluation loss generally recorded on the IS. The only exception is when the loss reverses a previously recognized gain, then it is recognized under OCI.
IFRS Revaluation Gains
Generally recorded under OCI. The only exception is when the gain reverses previously recognized loss, then it is reported on the IS to the extent it reverses the loss.
IFRS Impairment
Recorded by first reducing any revaluation surplus in equity to zero with further impairment losses reported on the IS.
Initial Franchise Fees
Intangible asset (capitalize) and amortize. PV of the amount paid and amortized over its expected period of benefit.
Capitalize
+ Cash
+ PV asset
- PV note
Continuing Franchise Fee
Expense as incurred
Start up Costs
Expenses related to formation of corporation. Expense as incurred.
Tax Rule - $5K is deducted and balance amortized over 15 years.
