Section 9 - Intangibles

Question 1

What are the three basic forms of intangible assets?

Answer 1

1) knowledge
2) legal rights and identifiable intangibles
3) goodwill

Question 2

Are intangible assets identifiable and unidentifiable?

Answer 2

YES, and maybe externally acquired or internally developed

Question 3

How is knowledge (research and development) costs treated?

Answer 3

Expense as incur

Question 4

Are legal fees in a successful defense of a patent amortized over the patent’s life?

Answer 4

Yes

Unsuccessful defense cost should be expense

Question 5

What is the maximum year life for patent?

Answer 5

20 years, but use shorter of useful or legal life

Question 6

What intangible assets are tested at least annually for impairment?

Answer 6

Intangible assets and GOODWILL with indefinite useful life

These are NOT amortized or depreciated

Question 7

At what level should goodwill be tested periodically for impairment?

Answer 7

At the level of REPORTING/OPERATING segment level or one level below

NEVER at the entity level

Question 8

What are the two steps for testing GOODWILL IMPAIRMENT?

Answer 8

Step 1
Compare carrying value to FV. If FV > CV, no impairment exist, you’re done.

Step 2
If impairment exist, assets and liabilities should be compared to total value of reporting unit. The difference is goodwill. Compare this amount to the CV of the good will and write it down accordingly.

Question 9

Can goodwill be amortized for NONPUBLIC companies under Private Company Council?

Answer 9

Yes, amortized on a straight-line basis over its useful life NOT to exceed 10 years.

One-step impairment test only if triggering event happened.

Question 10

How are software costs treated?

Answer 10

• Prior to Technological Feasibility - expense as R and D (program, design, cost and testing)
• After Feasibility but before production - AMORTIZED based on most conservative method (coding and testing after tech feasibility, product masters)
• Costs during production is part of inventory cost

Question 11

Under IFRS, what criteria must intangible asset meet in order to be recognize?

Answer 11

Must be BOTH identifiable intangibles and lack physical substance (except for goodwill)

Question 12

Under IFRS, what valuation methods are used for intangible assets?

Answer 12

Cost Model or Revaluation Model

Question 13

Under IFRS, an entity that acquires an intangible asset may use the revaluation model for subsequent measurement only if….

Answer 13

an ACTIVE MARKET exists for the intangible asset

Question 14

Under IFRS, an impairment loss is recognized in the period incurred as?

Answer 14

Cost Model - profit or loss

Revaluation Model - revaluation decrease

Losses may be reserved

Question 15

Under IFRS, how are impairment reversal treated?

Answer 15

Cost Model - impairment reversals are recognized up to the amount of previously recognized impairment losses

RM - impairment reversals are treated as revaluation adjustments

• increases recognized in income to the extent that they offset previously recognized losses
• any remainder recognized in OCI

Question 16

GAAP does not recognize internally generated intangible assets but does IFRS?

Answer 16

YES

Question 17

Under IFRS is R and D cost capitalized?

Answer 17

Development cost may be capitalized if certain condition applies but never research cost.