F. INTANGIBLE ASSETS – GOODWILL AND OTHER

Question 1

_{F. INTANGIBLE ASSETS – GOODWILL AND OTHER}

Describe: (5)

Answer 1

• Intangible assets are either created or acquired.
• They are assets that don’t have a physical form but are useful to a business for longer than a year.
• Although stocks and other securities sound like they fit this definition, intangible assets are separate from financial assets or investments.
• Intangibles either have a definite life, or an indefinite life, but
• All intangibles can be evaluated for impairment.

Question 2

_{F. INTANGIBLE ASSETS – GOODWILL AND OTHER}

Identifiable & Unidentifiable

Answer 2

Identifiable: these can be legally identified such as

• copyrights,
• customer lists,
• patents

Unidentifiable:

• goodwill

Question 3

_{F. INTANGIBLE ASSETS – GOODWILL AND OTHER}

Intangibles have two types of “life” & define Useful Life:

Answer 3

“Useful life” means how long the asset will provide a benefit, not strictly its legal life on paper. If a patent legally has 20 years left, but management projects it will only generate cash flows for 10 more years, its useful life is 10 years

Definite life: has a finite life legally or other factors limit its life

• Patents,
• copyrights

Indefinite life: no foreseeable limit on the life of the asset

• Trademarks

Question 4

_{F. INTANGIBLE ASSETS – GOODWILL AND OTHER}

Definite Life Intangibles treatment:

Answer 4

For definite life intangibles: (Patents, Copyrights)

• 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

Question 5

_{F. INTANGIBLE ASSETS – GOODWILL AND OTHER}

Indefinite Life Intangibles treatment:

Answer 5

For indefinite life intangibles: (Trademarks)

• 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