Intangible Assets Flashcards
True or False.
Costs incurred to defend a Patent CAN be Capitalized even if the defense is unsuccessful.
False. Costs incurred while successfully defending a patent CAN be capitalized
BUT costs incurred while unsuccessfully defending a patent cannot be capitalized but must be EXPENSED
Bottom Line: Litigation costs would be Capitalized ONLY if the patent right is successfully defended
WHAT would be considered “Research & Development” costs?
RESEARCH - Aimed at the discovery of new knowledge
DEVELOPMENT - The conversion of new knowledge into a design or plan for a new product or process
HOW are Amortization Costs determined for an entity after reaching technological feasibility but before commercial production?
Using the greater of Straight-line Method or Volume of Output Approach
Bottom Line: Whichever one produces the higher amount of Amortization Expense is the one that is used
HOW do you calculate Amortization Costs using the Volume of Output Approach?
Current Sales divided by estimated Future Sales and multiply this by the carrying value of the amortizable costs
WHEN should a company recognize Goodwill in their Balance Sheet (B/S)?
WHEN Goodwill has been created in the purchase of a business
NOTE: All costs to preserve Goodwill are expensed in the period they are incurred
True or False.
Start-up costs such as organization costs are capitalized in the period in which they occur.
FALSE.
Start-up costs such as costs of forming an organization or legal costs of incorporation, should be expensed as incurred
WHAT criterion must be met in order for an item to be recognized as an intangible asset other than Goodwill?
THE Item is Identifiable and “Lacks physical Substance”
True or False.
Prospective Awards arising from litigation are accrued and reported in the Financial Statements
FALSE.
Prospective Awards arising from litigation are NEVER accrued; but are disclosed in the notes to the financial statements
i.e. Prospective Awards are only recognized when actually realized
True or False.
An intangible asset of finite duration must be amortized over the LONGER of its legal or useful life.
FALSE.
An intangible asset of finite duration must be amortized over the SHORTER of its legal or useful life.
WHAT values are compared in order to determine possible impairment loss for an intangible asset other than Goodwill with an indefinite life?
THE Fair Value (F.V.) and Carrying Value (C.V.)
If the Carrying Value is more than the Expected Future Cash Flows; then you would compare the C.V. to the F.V.
If the C.V is greater than the F.V. then an impairment exists
HOW often should a company test their Goodwill for a potential Impairment Loss?
AT Least Annually
True or False.
Research and Development (R&D) costs are expensed in the period in which they occur
regardless of the likelihood that the effort will result in future benefits
TRUE.
R&D costs are expensed in the period in which they are incurred
WHAT are the criteria for an intangible asset to be considered identifiable under IFRS?
IT must be either :
(1) Separable; and
(2) Arise from contractual or legal rights
i. e. Under IFRS an intangible, an asset must either be separable or it must arise from contractual or legal rights.
WHAT would be considered your Research and Development costs WHEN developing computer software?
ALL costs incurred up to the point at which “technological feasibility” is achieved
i.e. Once technological feasibility is achieved, costs incurred up until production begins are capitalized to the software
True or False.
For First-in, First-out (FIFO) Inventory uses the Lower of Cost or Market.
FALSE.
Last-in, Last-out (LIFO) Inventory Method uses the Lower of Cost or Market (LCM)
First-in, First-out (FIFO) Inventory uses the Lower of Cost or Fair Market Value (LCFMV)
True or False.
Unrealized gains and losses on debt securities that are classified as “Held to Maturity” are recognized in INCOME in the period of the change
False.
Unrealized gains and losses on debt securities that are classified as “Held to Maturity” are recognized in either net income or other comprehensive income
WHY? - Because the investment is NOT adjusted to Fair Value
True or False.
When a Non-monetary Exchange has commercial substance, all gains or losses are deferred and the asset received is valued at the fair value of the asset acquired
FALSE FALSE!!!! FALSE!!!!
When a Non-monetary Exchange has commercial substance, all gains or losses are recognized immediately and the asset received is valued at the fair value of the Asset given up (if known) NOT the Asset acquired
WHAT would be considered Research and Development (R&D) Costs? That would be immediately expensed?
(1) Material and labor costs for prototype product
(2) Equipment purchased for current projects ONLY
(3) Research and Development (R&D) Salaries for a current project
HOW does the Moving Cost Inventory Method work?
IT requires that a new unit cost be computed each time goods are purchased
E.g. On 1/25 the costs for inventory of 1,000 units at 1.25 was $1,250; On 1/27 Inventory of 600 units was purchased at 1.75 for a total of $1,050.
- The new moving inventory cost would therefore be $2,300 divided by 1,600 units for a total of $1.44 a unit
WHAT is the Formula in order to convert current base year inventory costs to current year costs?
Take the current year inventory “Layer” at base year costs and Multiply it by the Price Index
Price Index = Inventory at Current year cost divided by Inventory at Base year cost
