Intangible Assets (F3M7)

Question 1

Purchased Intangible Assets

Answer 1

Capitalize at cost

Question 2

Internally developed intangible assets - GAAP

Answer 2

generally expensed. ex:

• trademarks (except for design costs)
• goodwill from advertising
• cost of developing, maintaining and restoring goodwill

EXCEPTION. CAN BE CAPITALIZED:

• legal fees related to SUCCESSFUL defense of asset (unsuccessful is expensed)
• registration or consulting fees
• design costs
• other direct costs to secure asset

Question 3

Internally developed intangible assets - IFRS

Answer 3

research costs are expensed.
development costs may be capitalized if:
-technological feasibility has been established
-entity intends to complete the intangible asset
-has ability to use/sell the asset
-will generate future economic benefits
-adequate resources available to complete development
-can reliably measure the expenditure attributable to development

Question 4

Intangible assets carrying value (IFRS)

Answer 4

-cost model = cost - amortization and impairment
OR
-revaluation model = FV on revaluation date - subsequent amortization and impairment

Question 5

Revaluation losses

Answer 5

FV < CV

• reported on income statement unless reporting previously recognized revaluation gain in OCI .
• reduce gain in OCI, excess in income statement

Question 6

Revaluation gains

Answer 6

FV > CV

-reported in OCI unless reversing previously recognized loss on income statement

Question 7

Impairment

Answer 7

Income statement

Under IFRS - first reverse previously reported revaluation gain in OCI to zero. excess on income statement

Question 8

Initial franchise fees

Answer 8

capitalize: cash paid + FV of asset + PV of liabilities

Question 9

Continuing franchise fees

Answer 9

• received for ongoing services provided by franchisor to franchisee. (management training, promotion, legal assistance etc.)
• franchisee expense as incurred/franchisor recognizes as revenue

Question 10

Start up costs

Answer 10

expensed when incurred. includes costs related to:

• organizing a new entity (legal fees to prepare partnership agreement)
• opening a new facility
• introducing new product
• conducting business in a new territory
• initiating new process in an existing facility

DOES NOT INCLUDE:

• business mergers/acquisitions
• ongoing customer acquisition

Question 11

R&D (GAAP)

Answer 11

expensed EXCEPT FOR:

• tangible assets (material, equipment, facilities) that have alternative future uses. capitalize and depreciate
• costs undertaken on behalf of others under contractual agreement. treated as inventory and expense the costs incurred as cost of sales

Question 12

Items not considered R&D

Answer 12

• routine periodic design changes to old products/troubleshooting
• marketing research
• quality control testing
• reformulation

Question 13

computer software development - for sale

Answer 13

• expense costs until technological feasibility established
• capitalize costs after technological feasibility established (completion of a detailed program design or working model)
• reported lower of cost or net realizable value

Amortization, GREATER of:

• percentage of rev = total capitalized amount * (current gross revenue for period / total projected revenue)
• straight line

Question 14

computer software development - internal use

Answer 14

• expense costs until technological feasibility established
• capitalize costs after technological feasibility established (completion of a detailed program design or working model)

Amortization = straight line

if subsequently sold, proceeds received first applied to carrying amount of software (recover costs) and then recognized as revenue.

Question 15

Internally developed intangible assets - GAAP EXCEPTIONS.

Answer 15

EXCEPTION. CAN BE CAPITALIZED:

• legal fees related to SUCCESSFUL defense of asset (unsuccessful is expensed)
• registration or consulting fees
• design costs
• other direct costs to secure asset