Intangibles Flashcards

1
Q

Intangibles with indefinite life

A

DO NOT AMORTIZE

Problem should state that the company has the right to extend the rights INDEFINITELY

SHOULD BE TESTED FOR IMPAIRMENT every reporting period.

Carrying value – Future Undiscounted Cash flows

If impaired, write down the asset to FV.

Impairment loss
Asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Journal entry

A

Amortization expense

Intangible Asset

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Impairment test process

For intangibles other than goodwill

A
  1. Perform qualitative testDetermine if it is more likely than not that the events and circumstances would result in impairment, then perform step 2 (YES)If qualitative test shows otherwise (results wont lead to impairment, then no more further tests needed bec the asset is not impaired) NO
  2. Perform quantitative assessment if qualitative assessment is YES.
    ***********
    Compare CV vs. FV - difference is the impairment loss amount.
    **
    **********
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

When to test for impairment

Goodwill VS Other intangibles

A

GOODWILL-

  • test annual basis and between annual tests
  • anytime during the company’s fiscal year as long as done the same time every year ( it doesn’t have to be year end)
    • different reporting units may be examined at different times during the year

OTHER INTANGIBLES:

  • tested annually EVERY REPORTING PERIOD
    or when circumstances changed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Qualitative performance - circumstances affecting impairment

A
  1. cost increases negatively affecting cash flows
  2. financial performance declines
  3. legal, regulatory or contractual changes
  4. entity specific events
  5. industry and market deterioration
  6. other macroeconomic conditions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Goodwill impairment test process

A
  1. Perform qualitative testIf CV > FV proceed to step 2
  2. Compute fair value of implied goodwill

Fair value of unit
Less: FV of net assets
= Implied goodwill

  Carrying amount of goodwill (original at 
                acquisition date)
  Less:   implied (new) goodwill  
  = Impairment loss   (new target)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

GOODWILL

When to test for impairment?

A

do not amortize
tested annually for impairment at the same time
use two step process
impairment loss cannot be recovered
internally developed goodwill is not capitalized
- expenses right away

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Other intangibles

Useful lives

A

Patent - maximum of 20 years / shorter of useful or legal life

Copyright - life of creator + 70 years
- 95 years for works for hire

Trademark - renewable every 10 years

Franchise - depending on contract

If useful life is longer than 10 years, amortize over useful life.

If ranges of lives are given, use the shortest.

Amortize SL unless given otherwise in the problem

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Research definition

A

costs aimed at discovery of new knowledge that will result in a new product or process
OR
significant improvement to a new product or process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Development costs

A

conversion of new knowledge into a plan or design for a new product or process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Market research and R&D performed for others - how are these recognized?

A

NOT research and development costs

Considered like cost of sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Market testing activities - research and development cost?

A

are not research and development costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Fixed assets used in research and development which has future economic benefits

A

CAPITALIZED and amortized over useful life

Research and development expense
Accumulated amortization

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Patents - what costs are capitalized?

A

cost of obtaining legal protection
successful defense in court

maximum life - 20 years
use shorter of useful or legal life

unsuccessful defense - expense

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Copyright

Life?

A

protection for artistic works etc
life of creator plus 70 yrs
95 years for works made for hire
amortize over USEFUL LIFE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Trademark

Life?

A

use of identifying name or product
amortize over useful life
usually has indefinite number of renewals

17
Q

franchise

Life?

A

operation of a business under contractual arrangements

18
Q

Intangibles with indefinite lives

A

NOT AMORTIZED
tested for impairment annually - use undiscounted present value method to test

CV > FV = Impairment loss

19
Q

Reasons for impairment

A

unanticipated competition
significant adverse change in business climate
loss of key personnel
expectation that a reporting unit will be sold or otherwise disposed

20
Q

3 methods of amortization of intangibles

A

SL
Unit of sales
Net realizable value -

use the most conservative - lowest carrying value and highest amortization expense

21
Q

Development stage enterprise

A
  1. devoted entirely to research and development

2. not yet generating significant revenue from any product or service

22
Q

Development stage enterprise financial statements

A

Report both one year and cumulative results on

Income statement
Statement of cash flows
Balance sheet - report cumulative losses since
inception in Stockholder’s equity

23
Q

Organization costs

A

Expensed immediately

Includes legal costs of incorporation

24
Q

How are legal costs of incorporation related to organization costs/forming a new organization reported?

A

expensed immediately

25
IFRS - INTANGIBLE ASSETS | Cost Model
Intangible asset Cash Amortization expense Accumulated amortization Impairment loss - IS Accumulated amortization of IA #impairment loss Accumulated amortization Impairment recovery - IS # up to amounts previously recognized for impairment loss only
26
IFRS - INTANGIBLE ASSETS | Revaluation Model
Intangible asset Cash Option to Revaluation Model: Intangible asset Revaluation surplus - OCI #adjustment to FV Revaluation Surplus - to zero Revaluation loss -IS Intangible asset #impairment loss Intangible asset Revaluation surplus-OCI New carrying value should not exceed the carrying amount before impairment.