Ch8 - Intangible assets Flashcards
Define intangible assets.
Intangible assets are defined as identifiable non-monetary assets without physical substance that are controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.
List main categories in intangible assets.
- Goodwill
- Research and development (R&D)
- Other intangible assets (patents, trademarks, customer lists, francises, computer software,…)
When is goodwill recognized?
Goodwill is recognized in a business combination.
Definition of goodwill.
Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.
How do we calculate goodwill at initial recognition.
Goodwill is calculated as a difference between purchase price of net assets acquired and fair value of net assets acquired.
List possible changes of value of intangible assets after initial recognition.
Intangible assets can:
a) decrease in value due to:
- amortization and/or
- impairment (IAS 36)
b) increase in value due to revaluation
Specifics of subsequent measurement of goodwill compared to other intangible assets.
Goodwill, as opposed to other intangible assets:
- is not subject to amortization, but is subject to annual impairment test
- once goodwill is impaired, impairment loss can not be reversed
List arguments in favour for capitalization of R&D.
R&D expenses, in case of success, should be related to future periods when the benefits will accrue (matching principle), therefore
R&D expenses should be capitalized with the principles of accrual accounting.
List arguments against capitalization of R&D.
Future economic benefits derived potentially from R&D are not sufficiently objectively defined at the time the expense is incurred to justify capitalization. Based on the prudence principle R&D expenses are more likely to be expensed .
