Intangibles Flashcards
Indefinite Life Intangibles
No amortization
Yes impairment
residual value
If it reverts to the lessor at the end of the period, it doesn’t matter to the lessee who would amortize the full amount.
Improvements
amortized over the shorter of the life or lease period
Start up costs
Expensed as incurred
Goodwill
Indefinite life - thus not amortized, but it is tested for impairment annually
Impairments
Reversal is prohibited
Deficits for Start Ups
Negative entry on shareholders equity
Trademark
Class - Def or Indef Capitalize - Exp. made to external Amortize - depends on class Impair - depends on class
Customer List
Class - Def
Capitalize - Exp made to external
Amortize - yes
Impair - recoverable cost test
Copyright
Class - Def
Capitalize - Exp made to external
Amortize - yes
Impair - recoverable cost test
Franchise (initial fee)
Class - Def or indef Capitalize - Exp made to external Amortize - depends on class Impair - depends on class
Software development
Class - Part def & part not intangible
Capitalize - Exp beyond tech feasibility
Amortize - Exp beyond tech feasibility
Impair - Net realizable value for capitlaized amount
R&D
Class - not an intangible
Capitalize - No
Amortize - No
Impair - No
Patent
Class - Def Life
Capitalize - Exp made to external
Amortize - yes
Impair - Recoverable Cost test
Goodwill
Class - Indef Life
Capitalize - Exp made to external
Amortize - no
Impair - Fair value test
Recoverable cost test
Intangible Def Life
1) BV > Recoverable value
2) Impairment loss = BV-FV.
Fair Value Test
Intangible Indef Life (not Goodwill)
1) BV > FV
2) impairment loss = BV - FV`
Goodwill
= Purchase $ - (BV + Fair V of identifiable assets)
Can be capitalized
PV of excess earnings
excess earnings = annual income - (Mkt value of net identifiable assets/years)
Also - Unit mkt value - mkt value of net identifiable assets
When no goodwill
Normal gain - happens when a company is in distress. Company needs to sale and will accept less than FV for identifiable assets.
Goodwill Impairment Test
Tested at least annually - at the reporting unit level or one level below.
Carrying value of goodwill is greater than the implied fair value of goodwill.
Qualitative Pre-step:
Microeconimic conditions
Industry & Mkt conditions
Firm Specific conditions
Quantitative test:
1) Measure FV of goodwill, allocated to assets
2) Compare to CV - If FV < CV, loss is recognized
Db Impairement Loss
Cr Goodwill
IFRS vs GAAP
IFRS can be revalued, GAAP cannot be revalued. IFRS can reverse impairment loss on all except goodwill, GAAP can not on any.
IFRS - review estimated life annually, GAAP only when events change.
Goodwill under IFRS vs GAAP
IFRS testing from the cash generating unit level with one step test. GAAP unit reporting level using two step test plus pre test.
