Intangibles

Question 1

Intangible Asset

Answer 1

May be externally acquired (purchased at fair value), or internally generated

Question 2

R&D

Answer 2

expensed immediately when used for self, and for an asset used in current R&D. Assets purchased for future R&D are capitalized

Question 3

Patent

Answer 3

legal cost of obtaining it and cost of defending it in court, unless unsuccessful then expense everything

if purchased, it is capitalized at purchase price

good up to 20 years, but use shorter of useful life or legal life

Question 4

Copyright

Answer 4

protection of artistic works:

books
recordings
software

period: creators life+70 years, but amortized over its useful life

Question 5

Trademark

Answer 5

exclusive use of name, indefinite number of renewals every 10 years

amortized over its useful life

Question 6

Leasehold improvements

Answer 6

making improvements to something you lease; amortize cost over the shorter of useful or legal life

Question 7

These are not amortized but instead tested annually for impairment

Answer 7

goodwill

all intangibles with indefinite useful lives (copyright, trademarks, patents, franchises)

Question 8

How to test for impairment (for those other than goodwill)

Answer 8

CV> expected future cash flows? If yes,

CV>fair value is the loss

Question 9

How is Fair Value determined for intangibles with indefinite useful lives?

Answer 9

MIC approach
Market
Income
Cost

Question 10

Ways to amortize a intangible WITH a definite useful life

Answer 10

Straight-line
Units of Production
Net realizable value

***use whichever results in lowest carrying value

Question 11

How is GOodwill tested for impairment? (public companies)

Answer 11

CV>fair value?, if yes, impairment loss

FV > FV of reporting unit = implied goodwill and compare this to goodwill in the books

Question 12

How to test for impairment for nonpublic companies

Answer 12

CV>FV = impairment loss

Question 13

What are costs called before technological feasibility?

Answer 13

R&D expense

Question 14

What are costs called between technological feasibility and production?

Answer 14

Software costs

Question 15

What are costs called after production?

Answer 15

Production costs aka inventory, and when you sell it, cost of goods sold

Question 16

Technological feasibility

Answer 16

when you finally have a working model after hella R&D

Question 17

Software costs

Answer 17

To be amortized over the larger of straight-line or revenue-to-total revenue calculation aka “relative sales value approach”

Question 18

Relative Sales Value APproach

Answer 18

aka revenue-to-total revenue

current period’s sales / (current period sales + estimated future sales)

Question 19

Accrued Revenue

Answer 19

Receivable
Revenue

Cash
Receivable

Question 20

Accrued Expense

Answer 20

Expense
Payable

Payable
Cash

Question 21

Deferred Revenue

Answer 21

Cash
Deferred revenue

Deferred Revenue
Revenue

Question 22

Deferred Expense

Answer 22

Deferred Expense
Cash

Expense
Deferred Expense

Question 23

When do we record Royalty revenue?

Answer 23

When EARNED, not when received

Question 24

Whole life vs Term life insurance

Answer 24

Whole life, part of it is considered an investment

term life, debit expense credit cash, you never have an asset