Intangible Assets Flashcards
Intangible Assets
Assets that don’t have a physical form but are useful to a business for longer than a year. They are separate from financial assets or investments.
Definite Life
Has a finite life legally or other factors limit its life. Patents, copyrights. Useful life means how long the asset will provide a benefit, not strictly its legal life on paper.
Indefinite life
No foreseeable limit on the life of the asset. Trademarks.
For definite life intangibles
You capitalize external costs (legal fees, etc)
They are amortized over their useful life on the straight-line method
There is impairment if book value is greater than recoverable cost
Impairment loss is BV - FV
For indefinite life intangibles
You capitalize external costs
They are NOT amortized (although goodwill can be amortized for nonpublic companies straight-line over 10-year period)
Impairment loss is BV - FV
Goodwill
Excess over fair market value of the acquired company’s assets. It represents brand value, customer loyalty, etc.
Goodwill can be impaired if it is determined that the carrying value of the goodwill is greater than its fair value. Goodwill is tested for impairment at the reporting unit level.
Impairment loss on goodwill if the entity’s carrying value of goodwill is greater than the entity’s fair value. The difference would be the impairment loss.
Impairment losses on goodwill cannot be reversed once recognized.
Nonpublic companies can elect to amortize goodwill on a straight line basis over a 10-year period.
IFRS and Intangibles
Under GAAP, re-valuation of goodwill is NOT allowed. Under IFRS it is allowed if in an active market.
Under GAAP, reversal of impairment loss is NOT allowed. Under IFRS a reversal of an impairment loss is permitted.
Under GAAP, goodwill is recognized at the “reporting unit” level. Under IFRS it is recognized at the cash-generating unit level.
