Intangible Assets pg 322-327 Flashcards
Definition
> Long-term operational assets lack physical substance/presences, but currently used operation of business & has useful life more than 1 yr
Many are legal rights
Sources of intangibles
> Acquired: Separately recognized if benefit is obtained through contractual/legal rights OR Intangible otherwise separable
Internally Developed: Expensed immediately if not specifically identifiable/have inderterminate values/inherent in continuing business and related to entity as a whole
- Expense amt internal expenditures to development of intangibles (patents/R&D/goodwill)
- Only costs capitalized are registration fees/legal costs paid to outsiders
Classifications
Definite: Identifiable, finite legal life or firm believes useful life is finite–amortization
Indefinite: No legal/regulatory/contractual/competitive factor limits life (ex: recognizable trademark)
Definite Life Intangibles
Capitalize, Amortization,Impairment
> Cap: External costs (paid for reg, legal/acct fees, outside design costs, consulting fees, successful legal defense. direct purchases of intangibles from others)
Amortization: Over useful life, usually no residual value, usually SL
Impairment: Same as assets in use Impairment if BV>R/ Impairment Loss = BV - FV
Indefinite Life (not GW) Capitalize, Amortization, Impairment
> Cap: External Costs
Amor: Do not Amortize
Impairment:Same as assets held for sale, impairment if BV>FV, Impairment loss = BV-FV
Goodwill
Capitalize,Amortization, Impairment
Cap: Price of firm accquired less FV of net assets of firm acquired
Amor: Do not Amortize
Impairment: 2-steps
Types of Intangibles
Pg 325
Impairment Loss
Cannot be reversed like it can be for plant assets (plant assets can be written up to extent of previous impairment loss
Deferred Charges
NOT INTANGIBLES
Long term prepaid insurance, long term prepaid rent, machinery rearrangement cost, deferred income taxes, deferred bond issue
Cash Surrender Value of Life Insurance
Classified as investment acct, but may be reported in “other assets” in balance sheet
Development Stage Enterprise Disclosures
- Accumulated operating deficit from operating losses during dev stage, in BS
- Cumulative amts from previous periods until firm no longer in dev stage
3 Disclosure firm is dev stage - Disclosure firm was previously dev stage in 1st yr after dev stage is complete
Goodwill
Excess of Fair Market Value of entity as whole over FMV of identifiable assets (including tangible/intangible both definite and indifinite life)
Goodwill costs
> Recorded on BS only when buyer firm obtains control of another enterprise
subsequent to aquision costs to maintain/enhane/repair purchased goodwill are expensed not added to recorded goodwill
If bargin purchase (CV<FMV) recognized as ordinary income
Goodwill Impairment
> Must be tested annually
Tested on reporting unit level ( component of operating segment which disccrete financial info is available/used by mgmt for decisions)
Two Sept
Qualitive test: optional/ if find not more likely than not (50% not likely) for impairment two-step process not required
Quantitative test: if Qualitive test find more likely than not (50% chance) likely for impairment two step quanitiative test required.
Step 1: Compares FV of reporting unit w/ carring amt (include deferred income tax and previous recognized goodwill) If CA of reporting unit > 0 and FV exceeds CA no step two considered not impaired
Sept 2: Assign FV to all assets/liablities (only used to measure GW impairmetn no change recorded in values of those assets) of a reporting unit and with that Net FV compare w/ FV of reporting unit as a whole. Excess of FV of reportig unit over FV amts assigned to net assets is implied goodwill. If CV > implied FV impairmetn loss recognized for excess.
> HOWEVER loss recognized cannot exeed CA of GW. After loss is rcognized adjusted CA is new basis for GW, CANNOT reverse impaiment loss
> If CA of reporting unit is 0 or negative second step must be performed
