chapter 12
Intangible Assets
Keiso Weygandt twelfth edition
Lack physical substance
not financial instruments
Trademarks or tradenames
Copyright
Franchise
Patent
indefinite number of renewals for 10 years each
life of the creator plus 70 years
20 years
Exercise 12-3
Purchased intangibles are recorded at cost
the fair market value of what is given up of what is received whichever is more clearly evident
internally created intangibles - generally the costs are expensed as incurred
Review material on impairment on pages 534-37
Exercise 12-7 &12-11(3)
1)
recoverability test
net future cash flows, including disposal, exceed the carrying value
2)
calculate loss
carrying value less FMV
or
carrying value less the present value of net future cash flows
the difference between writing down the cost of an asset and adjustments
indefinite life
not amortized
test for impairment annually but
skip the recoverability test
go directly to CV v FMV
limited life
amortize the cost over the expected useful life
related assets may limit the useful life
legal or regulatory
test for impairment
recoverability test
CV v FMV
Trademarks or tradenames
indefinite number of renewals for 10 years each
Company names
purchased
purchase cost
internal
attorney fees, registration fees, design costs, consulting fees,
cost of successful legal defense
Copyright
life of the creator plus 70 years
purchased
purchase cost
internal
cost of successful legal defense
Franchise
Patent
20 years
purchased
purchase cost
internal
cost of successful legal defense
R&D must be expensed
Goodwill
Exercise 12-12 & Problem 12-5
excess of price paid over the FMV of the identifiable assets
negative goodwill / badwill / bargain purchase
p 583
Impairment of Goodwill
special case
1)
does CV of the business that was purchased exceed the FMV
yes / no
2)
use the FMV of the net identifiable assets to determine the implied Good will
if CV of Goodwill exceeds the implied value
write down the Goodwill
Research and Development expense
Exercise 12-17
Materials, equipment & facilities, purchased intangibles
capitalize if it has alternate uses
Personnel
contract services
don't allocate G&A overhead to inflate R&D expense
Start up costs
Initial operating losses
Advertising costs
expense as incurred
loss
expense
Appendix A Software costs
internal use - software developed for internal use
prior to the "application development" stage
after the "application development" stage
Exercise 12-19
expense
capitalize
external use - software developed to be sold
prior to "technological feasibility" expense all costs to R&D
unless they have alternate uses
"technologically feasible" when
working model
detailed program design
after "technologically feasible"
capitalize
Amortization the greater of
1) straight line
2) ratio of ( current revenue / anticipated total revenues )