Intangible Assets

Question 1

When considering impairment of intangible assets, what type of intangible assets are tested for recoverability?

Answer 1

Only finite intangible assets are tested for recoverability. The recoverability concept is not used fro indefinite life intangible assets

Question 2

When is interest capitalized?

Answer 2

Interest is capitalized when an asset being constructed is for a discrete sale, lease, or for own use

Question 3

How much interest can be capitalized for a qualifying asset (a qualifying asset is an asset constructed for a discrete sale, lease, or own use

Answer 3

The lesser of the actual interst or avoidable interst

Question 4

How is avoidable interest computed?

Answer 4

1. Weighted Avg. Accumulted Expenditures is compared to the specific borrowing to construct the asset
2. Compute the avoidable interest
   a. If the specific borrowing > WAAE, multiply the WAAE times the specific borrowing interst rate
   b. If the specific borrowing < WAAE, add the interest from the specific borrowing to the portion of the
   additional debt needed to cover the excess over the specific borrowing
3. Compute the total interest for all borrowings
4. Compare the avoidable interest to the total interest
5. Capitalized interest is the lesser of actual to avoidable
6. Interst expense is the difference between the total interst expense and the capitalized interest

Question 5

Are patent registration and legal fees capitalized?

Answer 5

Yes, these items are capitalized as they provide a future economic benefit to an entity

Question 6

What is the treatment for litigation defense costs?

Answer 6

If the litigation is successful, defense costs are capitalized and amortized. If unsuccessful, defense costs are expensed

Question 7

What franchise fees/costs are capitalized?

Answer 7

The total amount paid for the franchise including any PV of installment payments

Question 8

What is the private company alternative for measurement goodwill?

Answer 8

An election that allows a company to amortize goodwill over 10 years instead of annual impairment testing

Question 9

Are indefinte intangible assets amortized?

Answer 9

No, indefinite intangible assets are not amortized, instead they are tested for impairment annually and adjusted if necessary