FAR 2F Intangibles Flashcards
(13 cards)
What is the legal life of a patent?
The legal life of a patent is 17 years. However, some intangibles, like trademarks, may have longer legal lives.
How are patents recorded and amortized?
Patents are recorded at cost and amortized straight-line over the shorter of legal or useful life or 17 years.
Formula: (Cost - Residual Value) / Years.
What is a patent, and how is it classified as an intangible asset?
A patent is an exclusive right granted by a government to an inventor to use, sell, or manufacture an invention. It is an identifiable, separable intangible asset with a legal life of 17 years.
How are internally developed intangibles recorded?
Internally developed intangibles are generally expensed as R&D costs. An exception is the legal costs of applying or defending a patent, which can be capitalized.
What are examples of intangible assets?
Examples include trademarks, internet domain names, noncompetition agreements, royalty agreements, franchise agreements, patented technology, computer software, and trade secrets.
How should costs related to defending a patent be treated?
If the patent defense is successful, the costs are capitalized. If unsuccessful, they are treated as a legal expense.
How are indefinite life intangibles handled?
Intangibles with an indefinite life (e.g., some trademarks) are not amortized, but are tested annually for impairment.
How are finite life intangibles handled?
Finite life intangibles are amortized and tested for impairment if the carrying value is not recoverable. The impairment amount is the difference between fair value and carrying value.
How are startup costs treated?
Startup costs are expensed as incurred and are not capitalized.
How are software costs amortized?
Software costs are amortized using the greater of:
1) The ratio of current sales to expected total sales, or
2) The straight-line method over the software’s useful life.
🪙 How are crypto assets reported on the balance sheet
✅ Crypto assets are classified as intangible assets.
✅ They are reported at fair value as of the balance sheet date.
📉 Why is straight-line amortization typically used for intangible assets under U.S. GAAP?
✅ U.S. GAAP requires straight-line amortization for intangible assets with a finite life, unless another method (like revenue-based) better reflects the benefit pattern.
✅ Future revenue projections are not typically used because they’re often too uncertain.
✅ So, unless stated otherwise, straight-line is the default for CPA exam questions.
🧠 Which intangible assets are tested for recoverability under U.S. GAAP?
✅ Only finite-life intangible assets (like patents or franchises) are tested for recoverability using the 2-step test
⚠️ Indefinite-life intangibles (like trademarks) skip recoverability and go directly to fair value impairment testing
🚫 No recoverability test applies to goodwill or indefinite-lived intangibles
