Intangibles Flashcards
Intangible Assets are NON-physical assets, include ONLY noncurrent intangibles. Typical intangibles are:
Copyrights, leaseholds, organizational costs, trademarks, franchises, patents, and goodwill.
Acquisition of Intangibles are recorded at?
COST, which is fair value at time of acquisition.
Internally developed intangibles are recorded at?
Expensed as research and development; except the cost to register a patent which is capitalized and amortized over the patent’s remaining economic life.
Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value.
Goodwill is assigned to a reporting unit as the difference between the fair value of the unit and the value of its individual assets and liabilities.
Should Intangible assets with a definite useful life be amortized?
If so,how?
Yes, amortize to Expense DR; Intangible Asset CR to reduce the asset.
Use method of amortization mirroring the pattern of the asset consumed. If not clear, use straight-line.
Should intangible assets with an unclear or indefinite life be amortized?
NO. If has the right and intent to extend the legal life of intangible, then life is indefinite.
When should intangibles be tested for impairment?
If intangible assets are amortized, it should be tested for impairment annually.
Intangible assets not amortized due to indefinite life should be tested for impairment annually after assessing if changes occurred to have definite life to trigger amortization.
Intangible assets with CV > FV?
Record an impairment loss in the amount of the difference
DR Impairment Loss
CR Intangible Asset
Impairment of Goodwill
Examine goodwill assigned to reporting units on annual basis and between annual tests in certain circumstances. May be at anytime in the fiscal year each year same time.
Has option to determine qualitatively if it is more likely than not (>50%) that FV of unit is < CV of unit, including goodwill. If yes, then assess if implied goodwill (calculate as assigned value of assets over FV Net assets) is < CV of goodwill recorded.
Write down if impairment loss occurred.
Under IFRS, should internally generated goodwill be recognized as an asset?
IFRS (International Financial Reporting Standards) explicitly states that internally generated goodwill shall not be recognized as an asset.
Patents:
For R&D of patents, the cost of a patent on a company’s books is the cost to file for the patent, and it is increased by any legal costs to successfully defend the patent. This is because the successful defense is a benefit to its future. If failed to defend, not a benefit so expense.
When a patent is internally generated, its cost is generally its legal filing fees.
R&D costs are expenses as incurred until technological feasibility established.
R&D (research and development) should be expensed if doubt exists as to whether any future benefits will be received.
Start up costs, one time costs to open new facility or process are EXPENSED as incurred.
Also called preopening costs, preoperating costs, and organization costs.
Computer Software costs expected to be sold, leased or marketed:
Expense as incurred costs up until point of technological feasibility! Even customer support and maintenance if before technological feasibility, expense.
Capitalize costs incurred after this until reaches market feasibility. Annual amortization of the costs as either GREATER of SL or current revenue/expected revenue * Cost, ceiling of CV = NRV of asset, write off difference if greater than NRV
Once market feasibility occurs, Costs for duplicating software or physical packaging are INVENTORY costs.
However, customer support and maintenance AFTER market feasibility are expensed as occurred.
A franchise right is an intangible asset that is identifiable and separable, may be purchased or developed internally, and has a variable legal life (depending on the contractual agreement). The accounting life is 40 years.
Franchise rights are recorded at cost to purchase or develop and defend, and are amortized straight-line over the shorter of the contract term, the useful life, or 40 years.
DR Franchise Asset = Cost
CR Cash
Amortize:
DR Expense
CR Franchise Asset
Costs associated such as initial fee is an Expense.
When, in the purchase of another company, the purchase price exceeds the fair value of all the assets the purchased company owns, then the excess is goodwill.
Calculation:
Acquisition Price
Less: FV Net assets acquired (Assets-Liabilities)
—-
Goodwill if excess over FV
