Intangible Assets Flashcards
Over what period are copyrights amortized?
The shorter of useful life or legal life.
Types of intangible assets
FORMS:
- knowledge: R&D, software
- legal right: patent, copyright, trademark, franchise, LHI
- goodwill: unidentifiable
IDENTIFIABILITY:
- identifiable: patent, copyright, trademark, franchise, license, LHI
- non-identifiable: goodwill
EXPECTED LIFE:
- patent, copyright, franchise, license, LHI
- trademark, goodwill
MANNER OF ACQUISITION:
- externally acquired: capitalize at cost
- internally developed: expense when incurred
Why are leasehold improvements considered intangible assets?
The physical improvements may be tangible but it is the LEGAL RIGHT to use the leased property that is the asset.
Goodwill
Inherent value in a company that cannot be distinguished or separated from the company itself.
FV - net assets = goodwill
Capitalization of costs
Externally acquired: capitalize at fair value
Internally developed: only certain costs incurred may be capitalized
Goodwill: consideration paid - (costs assigned to identifiable assets acquired - liabilities assumed)
Impairment - US GAAP
Definite lived assets:
Two-step process (same as for tangibles):
1) if CV > non-discounted cash flows, then proceed to step 2
2) CV - FV (discounted FCF) = impairment
Indefinite lived:
Two step process:
1) if CV > FV, then proceed to step 2
2) CV - FV = impairment loss
Impairment - IFRS
“One-step” model
CV - recoverable amount
recoverable amount is greater of
NRV (asset value if sold)
PV of FCF (asset value if in use)
Change in useful life
treated as a change in accounting estimate to be accounted PROSPECTIVELY
this is a change in the amortization
Disposal
Sale price - carrying value = gain (loss)
Research & development
knowledge based intangibles
research - figuring out if idea/concept is feasible or not
development - converting the research into a practical model
R&D (GAAP)
knowledge based intangibles
expensed when incurred, including equipment for R&D
only capitalize tangible/intangible fixed assets IF they have alternative future uses
NOT R&D:
- R&D performed for others under contract
- commercial production/activity
- seasonal, routine, or troubleshooting activity in production stage
- quality control testing
- market research or testing
- reformulation of a chemical compound
R&D (IFRS)
knowledge based intangibles
research costs - always expense
development costs - may be capitalized if ALL of the following criteria are met:
- technological FEASIBILITY has been established
- RESOURCES AVAILABLE to complete development and sell/use asset
- INTENTION & ABILITY to complete and use/sell
- BENEFITS (economic) expected to be generated in the future
- expenses attributable to the development can be RELIABLY MEASURED
FEASIBLE RESOURCES AVAILABLE; INTEND BENEFITS, EXPENSES RELIABLE
Computer software - developed as a product for sale, lease, or market
knowledge based intangibles
IFRS - treated as R&D
GAAP:
expense as R&D:
intangibles - amount to capitalize
life determinable - SL over life for lesser of acquisition cost or FV
