Intangibles

Question 1

Indefinite Life Intangibles

Answer 1

No amortization

Yes impairment

Question 2

residual value

Answer 2

If it reverts to the lessor at the end of the period, it doesn’t matter to the lessee who would amortize the full amount.

Question 3

Improvements

Answer 3

amortized over the shorter of the life or lease period

Question 4

Start up costs

Answer 4

Expensed as incurred

Question 5

Goodwill

Answer 5

Indefinite life - thus not amortized, but it is tested for impairment annually

Question 6

Impairments

Answer 6

Reversal is prohibited

Question 7

Deficits for Start Ups

Answer 7

Negative entry on shareholders equity

Question 8

Trademark

Answer 8

Class - Def or Indef
Capitalize - Exp. made to external
Amortize - depends on class
Impair - depends on class

Question 9

Customer List

Answer 9

Class - Def
Capitalize - Exp made to external
Amortize - yes
Impair - recoverable cost test

Question 10

Copyright

Answer 10

Class - Def
Capitalize - Exp made to external
Amortize - yes
Impair - recoverable cost test

Question 11

Franchise (initial fee)

Answer 11

Class - Def or indef
Capitalize - Exp made to external
Amortize - depends on class
Impair - depends on class

Question 12

Software development

Answer 12

Class - Part def & part not intangible
Capitalize - Exp beyond tech feasibility
Amortize - Exp beyond tech feasibility
Impair - Net realizable value for capitlaized amount

Question 13

R&D

Answer 13

Class - not an intangible
Capitalize - No
Amortize - No
Impair - No

Question 14

Patent

Answer 14

Class - Def Life
Capitalize - Exp made to external
Amortize - yes
Impair - Recoverable Cost test

Question 15

Goodwill

Answer 15

Class - Indef Life
Capitalize - Exp made to external
Amortize - no
Impair - Fair value test

Question 16

Recoverable cost test

Answer 16

Intangible Def Life

1) BV > Recoverable value
2) Impairment loss = BV-FV.

Question 17

Fair Value Test

Answer 17

Intangible Indef Life (not Goodwill)

1) BV > FV
2) impairment loss = BV - FV`

Question 18

Goodwill

Answer 18

= Purchase $ - (BV + Fair V of identifiable assets)

Can be capitalized
PV of excess earnings
excess earnings = annual income - (Mkt value of net identifiable assets/years)

Also - Unit mkt value - mkt value of net identifiable assets

Question 19

When no goodwill

Answer 19

Normal gain - happens when a company is in distress. Company needs to sale and will accept less than FV for identifiable assets.

Question 20

Goodwill Impairment Test

Answer 20

Tested at least annually - at the reporting unit level or one level below.

Carrying value of goodwill is greater than the implied fair value of goodwill.

Qualitative Pre-step:
Microeconimic conditions
Industry & Mkt conditions
Firm Specific conditions

Quantitative test:

1) Measure FV of goodwill, allocated to assets
2) Compare to CV - If FV < CV, loss is recognized

Db Impairement Loss
Cr Goodwill

Question 21

IFRS vs GAAP

Answer 21

IFRS can be revalued, GAAP cannot be revalued. IFRS can reverse impairment loss on all except goodwill, GAAP can not on any.
IFRS - review estimated life annually, GAAP only when events change.

Question 22

Goodwill under IFRS vs GAAP

Answer 22

IFRS testing from the cash generating unit level with one step test. GAAP unit reporting level using two step test plus pre test.