Intangible Assets
IAS 38
2015
1
Intangible Assets Issues
Characteristics
Two Main Characteristics:
(1)
Lack of physical existence.
(2) They are not financial instruments.
Normally classified as long-term asset.
Common types of intangibles:
Patents
Trademarks or trade names
Copyrights
Goodwill
Franchises or
licenses
2015
2
Intangible Assets Issues
Purchased Intangibles:
Recorded at cost.
If purchased in exchange of stock, the fair value
of the consideration given or received which is
evident, should be recognized.
Includes all costs necessary to make the
intangible asset ready for its intended use.
Internally Created Intangibles:
Expense as incurred
Only capitalize direct costs incurred in developing the
intangible, such as legal costs.
2015
3
Intangible Assets Issues
Determine The Useful Life
•
Expected Use
•
Useful Life of relative assets
•
Legal Regulatory Conceptual Framework
•
Limiting useful life
•
Law supporting renewal or extension
•
Effect of obsolesce, demand, competition.
Level of Maintenance cost
2015
4
Intangible Assets Issues
Amortization of Intangibles
Limited-Life Intangibles:
•
Amortize to (Cost Less Residual Value)
•
Assume zero Residual value unless it has value to another company
after its useful life
•
Reflect the pattern in which the company consumes the asset (if
Determined)
•
Credit asset account or accumulated amortization.
Indefinite-Life Intangibles:
•
No foreseeable limit on time the asset is expected to provide cash
flows.
•
No amortization.
2015
5
Intangible Assets Issues
Accounting Treatment for Intangibles
2015
6
Types of Intangibles
Six Major Categories:
1) Marketing-related.
2) Customer-related.
3) Artistic-related.
4) Contract-related.
5) Technology-related.
6) Goodwill.
2015
7
Types of Intangibles
Marketing-Related Intangible Assets
• Examples are:
 Trademarks or trade names, newspaper mastheads,
Internet domain names, and noncompetition agreements.
• Trademark or trade name has legal protection for indefinite
number of 10 year renewal periods.
• Capitalize acquisition costs.
• No amortization.
2015
8
Types of Intangibles
Customer-Related Intangible Assets
• Examples are:
 customer lists, order or production backlogs,
and both contractual and non contractual
customer relationships.
• Capitalize acquisition costs.
• Amortized to expense over useful life.
2015
9
Types of Intangibles
Artistic-Related Intangible Assets
•
Examples are:
 plays, literary works, musical works, pictures, photographs, and
video and audiovisual material.
•
Copyright is granted for the life of the creator plus 70 years.
•
Capitalize costs of acquiring and defending a copyright.
•
Amortized to expense over useful life or legal life(Whichever is
shorter)
2015
10
Types of Intangibles
Contract-Related Intangible Assets
• Examples are:
 franchise and licensing agreements, construction
permits, broadcast rights, and service or supply
contracts.
• Franchise (or license) with a limited life should be
amortized to expense over the life of the franchise.
• Franchise with an indefinite life should be carried at cost
and not amortized.
2015
11
Types of Intangibles
Technology-Related Intangible Assets
•
Examples are:
 patented technology and trade secrets granted by the U.S. Patent
and Trademark Office.
•
Patent gives the holder exclusive use for a period of 20 years.
•
Capitalize costs of purchasing a patent.
•
Expense any R&D costs in developing a patent.
•
Legal fees incurred successfully defending a patent are capitalized to
Patent account.
2015
12
Types of Intangibles
Goodwill

Created by good relationships by building up a reputation.

A going concern valuation.

Measured at the time of business to be sold.

The excess or residual amount of the cost over the fair value of the identifiable net assets
purchased.

The most intangible of the intangible assets.

Can not be amortized; can only be impaired.

Internally created goodwill should not be capitalized.
2015
13