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Flashcards in Ch 12 Deck (52):
0

Integrated report

Report where company discloses data on dozens of metrics
Beyond conventional balance sheet accounting

1

ESG

Sustainability report

Has 3 major categories: environmental, social and
Corporate governance

2

2 main characteristics of intangible assets?

1 they lack physical existence

2 they aren't financial instruments

3

Intangible assets derive their value from...

The rights and privileges granted to the company using them

4

How are purchased intangibles recorded?

Companies record at cost intangibles purchased from
Another party

5

What are 5 typical costs included in the valuation of intangible assets?

1 all acquisition costs
2 expenditures to make intangible asset ready for intended use
3 purchase price
4 legal fees
5 incidental expenses

6

How is the cost of the intangible determined when it is acquired in an exchange for stock or other assets? 2 possibilities

Fair value of the consideration given
Or fair value of intangible received (whichever is more evident)

7

Business combination

Transaction where purchaser obtains control of 1 or more businesses

8

What do companies only capitalize when developing the intangible?

Only direct costs incurred such as legal fees

The rest is expensed

9

Amortization

Allocation of cost of intangible assets in systematic way

10

Which types of intangibles are and are not amortized?

Limited useful life intangibles are amortized

Indefinite useful life intangibles are not amortized

11

Evaluating limited life intangibles for impairment

Impairment loss should be recognized if carrying amount
Of intangible is not recoverable and exceeds its fair value

12

Indefinite life intangibles

If no factors legal, regulatory, contractual or competitive
Limit useful life of intangible

No foreseeable limit in period of time intangible is expected
To provide cash flow

13

Impairment test for limited life intangibles? How often should it be performed?

Only fair value test is performed, not the recoverability test

Should be performed annually

14

6 major categories of intangible assets?

1 marketing related intangible assets
2 customer related intangible assets
3 artistic related intangible assets
4 contract related intangible assets
5 technology related intangible assets
6 goodwill

15

Marketing related intangible assets, give examples

Used in marketing or promotion of products or services

Ex. Trademarks, newspaper mastheads,
Internet domain names and noncompetition agreements

16

Trademark AKA Trade name

Word, phrase or symbol that distinguishes or identifies
A particular company or product

17

Registration with the US Patent and Trademark Office provides legal protection for an...

Indefinite number of renewals for periods of 10 years each

18

Customer related intangible assets, examples

Result from interaction with outside parties

Ex. Customer lists, order or protection backlogs,
Contractual and noncontractual customer relationships

19

Artistic-related intangible assets

Involve ownership rights to plays, literary works, musical
Works, pictures, photographs, video and audiovisual material

Copyrights protect these ownership rights

20

Copyright, how long are they granted for?

Federally granted right that all authors, painters, musicians,
Sculptors and other artists have in their creations and
Expressions

For the life of the creator plus 70 years

21

Contract related intangible assets, examples

Represent value of rights that arise from contractual arrangements

Ex. Franchise, liscensing agreements, construction permits,
Broadcast rights, service or supply contracts

22

Franchise

Contractual arrangement where franchiser grants franchisee
The right to sell products or services, use certain trademarks,
Or perform certain functions in designated geographic region

23

Liscences or permits, examples

Operating rights

Ex. Fox, CBS, NBC paid $27.9 billion for the right to
Broadcast the NFL over 8 years

24

A company should amortize the cost of a franchise or liscense with a...

Limited life as an operating expense over the life of the
Franchise

25

Technology-related intangible assets, examples

Relate to innovations or technological advances

Ex. Patented technology, trade secrets granted by US
Trademark and Patent Office

26

Patent

Gives holder exclusive right to use, manufacture and sell
Product or process for period of 20 years without
Interference by others

27

1 Product patents, 2 process patents

1 Cover actual physical products

2 Govern process of making products

28

When protecting a patent a company must expense as incurred...

Any R&D costs related to development of product, process,
Or idea that it subsequently patents

29

Amortization: patents

Companies should amortize cost of patent over its legal
Life or it's useful life (period where benefits are received)

Whichever is shorter

30

Goodwill AKA plug, gap filler, master valuation account

Excess of cost of purchase over fair value of identifiable
Net assets (assets less liabilities) acquired

31

Internally created goodwill

Should not be capitalized in accounts

32

Capitalizing goodwill only when it is purchased in an arms length transaction and not capitalizing any goodwill generated internally is another example of...

Faithful representation winning out over relevance

33

Master valuation approach: goodwill

Difference btw [(cost of assets or enterprise acquired) +
(fair value of net identifiable assets)] - (liabilities)

34

Companies that recognize goodwill in a business combination consider it to have an...

Indefinite life and should not amortize it

35

Companies adjust goodwill's carrying value only when...

Goodwill is impaired

36

Bargain purchase

When purchaser pays less than fair value of the net
Identifiable assets

Recorded As a gain for purchaser

37

Impairment, what do they apply to?

Carrying amount of long lived asset (property, plant, equip.
Or intangible asset) is not recoverable

Therefore write-off needs to be recorded

Apply to property, plant and equip. And limited life intangibles

38

Recoverability test

Company estimates future cash flows expected from use
Of asset and eventual disposal

39

Fair value test

Test measures the impairment loss by comparing the
Asset's fair value with it's carrying amount

Impairment loss = carrying amount of asset
- fair value of impaired asset

40

Restoration of impairment losses

Companies may not recognize restoration of previously
Recognized impairment loss

41

Research and Development Costs

Frequently result in development of patents and copyrights

Companies must expense all R&D costs when incurred

42

IFRS VS GAAP: Research and Development

IFRS requires capitalization of appropriate development
Expenditures, this conflicts with GAAP

43

5 costs associated with R&D activities

1 materials, equipment and facilities
2 personnel
3 purchased intangibles
4 contract services
5 indirect costs

44

Research and Development accounting treatment: materials, equipment and facilities

Expense entire costs unless items have alternative future
Uses

If alt. future uses, carry items as inventory + allocate as
Consumed or capitalize and depreciate as used

45

Research and Development accounting treatment: personnel

Expense as incurred salaries, wages and other related
Personnel costs in R&D

46

Research and Development accounting treatment: purchased intangibles

Recognize and measure at fair value

Account with respect to limited or unlimited life of intangible

47

Research and Development accounting treatment: Contract services

Expense costs with services performed by others in
connection with R&D

48

Research and Development accounting treatment: indirect costs

Include reasonable allocation of indirect costs in R&D
Costs

except general and administrative cost which must be clearly
Linked

49

Startup costs, examples

Incurred for one-time activities to start new operation

Ex. Open new plant, introduce new product or service,
Conduct business in new territory

50

Organizational costs

Legal and state fees incurred to organize a new business
Entity

51

Presentation of intangibles on the balance sheet?

The balance sheet should present all intangible items
separately except goodwill