Intangible Assets

Question 1

define intangible asset

Answer 1

An asset that lacks physical substance and provide economic benefits through the rights and privileges associated with their possession

Question 2

What are the 3 basic forms of intangible assets

Answer 2

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

Question 3

Are Research and Development (R&D) costs capitalized or expensed

Answer 3

always expensed due to the high level of uncertainty if it will result in anything

Question 4

what is done with costs in successfully defending a patent?

Answer 4

they are capitalized

Question 5

what is done with costs in unsuccessfully defending a patent?

Answer 5

they are expensed

Question 6

what are the 4 major types of intangible legal assets

Answer 6

• patents
• copyrights
• trademarks
• franchises

Question 7

what life is used for amortization of patents

Answer 7

the shorter of useful or legal life, with a max of 20 years

Question 8

how long is a copyright period in effect for and over what period of time should they be amortized

Answer 8

the life of the creator plus 70 years (or 95 years total for works made for hire)
Copyrights should be amortized over their useful lives

Question 9

define leasehold improvements

Answer 9

improvements made by a tenant to long-term lease on real estate property

Question 10

are leasehold improvements expensed or capitalized

Answer 10

capitalized and amortized over the benefit period. This is the shorter of the useful life or legal life

Question 11

what are the 3 methods of amortization for intangible assets

Answer 11

• straight line
• units of sales
• net realizable value

Question 12

define goodwill and in what situations does it occur

Answer 12

The unidentifiable value of a company’s brand. It is never carried on the balance sheet unless related to a purchase of a company.

Question 13

Is goodwill amortized

Answer 13

No, but it is tested annually for impairment

Question 14

what are the steps in testing for goodwill impairment

Answer 14

1. Determine if the carrying value exceeds fair value. Fair value is the amount that would be received to sell an asset
2. Fair value - value of tangible assets = New goodwill amount. Write down goodwill to match the new amounts

Question 15

are software costs expensed or capitalized, and if they are capitalized, at what point is that done

Answer 15

software costs incurred before “technological feasibility” (have a working model) are expensed. Software costs after technological feasibility are capitalized

Question 16

is internally generated goodwill recognized, and if so, what account and financial statement

Answer 16

it is not recognized under either GAAP or IFRS. Goodwill is only created when a company is purchased

Question 17

are costs incurred to maintain goodwill expensed or capitalized

Answer 17

expensed

Question 18

IFRS - what are the 2 criterion for intangible assets

Answer 18

Must be:

1. based on contractual or legal rights, OR
2. It can be separated from the entity, and sold, transferred, licensed, rented or exchanged

Question 19

IFRS - Are Research and Development (R&D) costs capitalized or expensed

Answer 19

Research is always expensed, but unlike GAAP development MAY be capitalized if it meets certain criteria

Question 20

IFRS - What are the 6 criteria that must be met to capitalized development costs

Answer 20

1. Technological feasibility of completing the asset for use or sale has been achieved
2. The entity intends to complete and use or sell the asset
3. The entity has the ability to use or sell the asset
4. The entity understands how the asset will generate probable future economic benefits
5. Technical, financial and other resources are available to complete development of the asset
6. The entity has the ability to reliably measure the expenditures

Question 21

IFRS - what valuation models can be used for intangible assets

Answer 21

cost model (CM) or revaluation model (RM)
Revaluation model can only be used if determined from an active market

Question 22

IFRS - do impairment reversals on intangible assets go to OCI or to the income statement if using the cost model (CM)

Answer 22

income statement

Question 23

IFRS - do impairment reversals on intangible assets go to OCI or to the income statement if using the revaluation model (RM)

Answer 23

other comprehensive income (OCI)