Chapter 7.3: Natural Assets, Intangible Assets and Goodwill Flashcards
What are wasting assets in the context of natural resources, and why do they attract public attention?
Wasting assets are natural resources like oil and minerals that are physically used up.
Public attention is drawn to companies dealing with these resources due to their significant impact on the environment and the money spent on environmental protection.
How are rights to explore and develop natural resources recorded in financial statements?
Rights to explore and develop natural resources are recorded based on the cost principle.
However, companies do not own the land from which they extract; instead, they receive specific rights from the government, referred to as the Crown, to explore and extract specific minerals.
What is depletion, and how is it calculated for natural resources?
Depletion is the process of allocating a natural resource’s cost over its exploitation period.
The depletion rate is computed by dividing the total acquisition and development cost by the estimated units that can be withdrawn economically.
The units-of-production method is often used to calculate depletion.
How are buildings and improvements related to natural resource development accounted for?
Buildings and similar improvements related to natural resource development are recorded in separate asset accounts and depreciated, not depleted.
Their useful lives cannot exceed the time needed to exploit the natural resource unless they have significant use after depletion.
What are the environmental concerns and liabilities faced by companies involved in natural resource extraction?
Companies involved in natural resource extraction face environmental remediation and restoration laws.
They can incur significant liabilities for environmental contamination, including emissions of toxic chemicals into the air, land, and water.
The intensifying global demand for resources has expanded accountants’ reporting responsibilities.
What are intangible assets, and why are they important for organizations?
Intangible assets have value due to legal rights and privileges and lack physical substance.
Examples include copyrights, patents, trademarks, and licenses.
They are essential in the digital age due to computer systems, intellectual property, and acquisitions, often promising significant future benefits.
How are intangible assets recorded and amortized with definite lives?
Intangible assets with definite lives are amortized on a straight-line basis over their useful lives, similar to depreciation.
Amortization expense is calculated by dividing the cost of the asset by its useful life.
The accumulated amortization is subtracted from the cost to report the asset’s net book value on the statement of financial position.
What happens to intangible assets with indefinite lives, and how is impairment assessed?
Intangible assets with indefinite lives are not amortized. They must be reviewed annually for possible impairment due to changes in technology, preferences, economic downturn, or industry deterioration.
If the fair value is less than carrying amount, impairment loss is recognized.
If both fair value and value in use are lower, the higher of the two is compared to carrying amount to determine impairment loss. Impairment assessment is similar to other long-lived assets.
How is impairment loss calculated for intangible assets with indefinite lives?
Impairment loss for intangible assets with indefinite lives is calculated as the difference between the carrying amount and the recoverable amount (higher of value in use and fair value less costs to sell).
If the recoverable amount is less than carrying amount, impairment loss is recognized.
What is a patent, and why is it essential for inventors and businesses?
A patent is an exclusive right granted by the Canadian Intellectual Property Office, allowing the inventor to use, manufacture, and sell a new product or process for 20 years.
It protects inventors from competitors copying their inventions and provides a period for economic return on new products, encouraging innovation.
How are purchased patents and internally developed patents recorded in financial statements?
Purchased patents are recorded at cost, while internally developed patents are recorded at their registration and legal costs.
If acquirers incur costs to significantly change the patented product or process, these costs may be capitalized under specified conditions in IAS 38 (Intangible Assets).
How is the amortization of patents calculated, and what factors influence it?
Patents are typically amortized over the shorter of their economic life and remaining legal life.
Amortization is the process of allocating the patent’s cost over its useful life.
The decision on the economic life considers the period during which the patent is expected to generate economic benefits.
Why might internally developed patents not be reported as assets on financial statements?
Internally developed patents might not be reported as assets on financial statements if their valuation is subjective due to the absence of an exchange transaction or an active market. Valuation challenges can prevent the inclusion of these patents as assets in financial reports.
What is a copyright, and how is it protected by the Canadian Intellectual Property Office?
Copyright protection, granted by the Canadian Intellectual Property Office, gives the owner exclusive rights to publish, use, and sell literary, musical, or artistic work for up to 50 years after the author’s death.
It prevents unauthorized copying and distribution of copyrighted materials.
How are technology-related intangible assets, such as computer software and website development costs, accounted for?
Costs related to website development, including domain acquisition and graphic design, are capitalized as intangible assets.
Computer software costs incurred after reaching technological feasibility, such as coding and testing, are also capitalized.
Costs incurred during the preliminary concept phase are expensed.
