M7 - Intangibles Flashcards
Goodwill is amortized and not subject to an impairment test. (true or false)
False, Goodwill is not amortized, but is subject to an impairment test.
Internal development of goodwill (i.e. expenditures designed to maintain goodwill) will be capitalized with Goodwill.
False, these will be expensed since it is an internal development of goodwill and cannot be capitalized.
Under US GAAP what should be included in Research and Development Expense?
- R&D contracted out to a third party,
- Preproduction prototypes and model costs,
- Costs for searching for new products or new process alternatives are reported as R&D expense.
Research and Development Costs are expensed or capitalized under US GAAP?
Expensed
Legal fees and other costs associated with registering a patent are capitalized or expensed under US GAAP?
capitalized
For software developed internally, costs incurred in the “preliminary” stage are expensed or capitalzed under US GAAP?
expensed. (basically R&D).
The costs AFTER the preliminary project stage are capitalized and depreciated over the economic life of the product.
GAAP requires that start-up costs, including organizational costs, be expensed as incurred, without exception. (true or false)
True
Capitalized costs under IFRS of a patent include:
- patent purchase price
- nonrefundable VAT taxes (Value Added Taxes) similar to sales taxes.
- Legal costs to register the patent.
Research expenditures must be expensed under IFRS (and US GAAP).
Staff training and administrative salaries must also be expensed.
True or False: Legal costs related to an unsuccessful defense of a patent must be capitalized under IFRS and US GAAP.
False, it must be expensed.
Under IFRS, development costs (not research) may be capitalized if certain criteria are met. If the patent has been granted, it is generally appropriate to capitalize the related design costs. (true or false)
True
Intangible assets should be amortized over the (lesser or greater) of the useful economic life or the legal life?
Lesser
What are a few examples that are NOT Research and Development?
- Legal Fees for the patent application for the product. (this should be capitalized)
- Marketing research to promote the new product
- Engineering follow-up during the early stages of commercial production
Development costs of a new product idea are a direct expense. NOT CAPITALIZED. (true or false)
true (under US GAAP)
Development cost may be capitalized if certain criteria are met.
What equipment under Research and Development can be capitalized and depreciated over its useful life?
ONLY equipment purchased for current AND future projects.
Not equipment for current projects only
A company should recognize goodwill in its balance sheet at which of the following points?
Goodwill is recognized in the balance sheet when it has been created from a business acquisition.
Cost associated with developing goodwill are NOT capitalized.
The company does not recognize goodwill in its balance sheet because it expects a future benefit from the creation of goodwill.
Under the acquisition method, goodwill is a representation of an ACQUIRED COMPANY’S fair value over the fair value of the entity’s net assets and is not recognized solely because the fair market value of a company’s assets exceeds the book value of the company’s assets.
