Intangibles Flashcards

1
Q

True or False? Goodwill is amortized.

A

False

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2
Q

When do we test for impairment?

A

Annually or when factors indicate impairment

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3
Q

True or False? Indefinite life intangibles are not amortized.

A

True

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4
Q

True or False? Subsequent reversal of previously recognized impairment loss is prohibited.

A

True.

Note: Impairment on plant assets held for disposal can be reversed to the extent of previous losses.

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5
Q

How should lease improvements be amortized?

A

Using the shorter of the lease term and useful life of the leasehold improvements because leasehold improvements revert to the lessor at the end of the lease term e.g. the lease improvements may have a useful life of 8 but the if there is only 6 years of the lease left, the costs would be amortized over the remaining 6 years of the lease.

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6
Q

How should copyrights be amortized?

A

The life assigned to the intangible asset is the shorter of its legal and useful life. Typically seen is a legal life of 30 and a useful life of 25.

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7
Q

How do you compute life insurance expense?

A

In computing life insurance expense, the increase in cash surrender value is subtracted from the annual premium because the net cost to the firm is the premium less the increase in that investment. The investment is property of the insured firm i.e. increase in cash surrender value = decrease in insurance expense, vice versa.

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8
Q

What types of costs should be deferred for a development state enterprise?

A

Such enterprises are subject to the same accounting principles governing capitalization of costs as enterprises that have established themselves as on-going enterprises. Therefore, the amount of cost to be capitalized or deferred is the amount of cost that is recoverable in future periods.

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9
Q

True or False? Start-up costs are expensed as incurred.

A

True.

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10
Q

What is cash surrender value?

A

The cash surrender value (CSV) is an asset that has been recorded previously and is considered paid when the firm decides to cash the policy in, or upon death of the insured.

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11
Q

How do we treat organization costs?

A

Organization costs are expensed immediately. Such costs are internally generated. Typically, only costs paid to outside entities are capitalized to intangible assets, and only those intangibles with definite lives are amortized.

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12
Q

What are qualitative factors considered to determine if it is more likely than not that the reporting unit is less than its carrying value?

A

1) Industry and market conditions
2) Cost factors
3) Overall financial performance

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13
Q

When is goodwill recognized?

A

Goodwill is recognized and measured at the date of a business acquisition. Goodwill is measured as the difference between the consideration transferred in a business acquisition and the fair market value of the identifiable net assets acquired.

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14
Q

Under IFRS, what criterion must be met in order for an item to be recognized as an intangible asset?

A

IAS 38 defines an intangible asset as a nonmonetary asset without physical substance that is identifiable. Identifiable means that the asset is 1) separable or capable of being separated or divided from the entity and can be sold or transferred and 2) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity. This definition is essentially the same as under U.S. GAAP.

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15
Q

What is the definition of recoverable costs per IFRS?

A

The greater of fair value less cost to sell or value in use is the recoverable amount according to IFRS.

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16
Q

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Under IFRS, is subsequent reversal of a previously recognized impairment loss prohibited?

A

Under IFRS impairment losses associated with identifiable intangibles are recoverable. Impairment losses associated with goodwill are NOT recoverable.

17
Q

Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if:

A

An active market will provide a relevant and reliable reference to the assets value. Therefore, just like with PPE, revaluation to fair value is permitted. IAS 38 defines an active market as one that the items traded in the market are homogeneous, there are willing buyers and sellers, and prices are available to the public.