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Intangible Assets

Intangible assets are identifiable, non-monetary assets without physical substance. They include purchased intangibles, intangibles from business combinations, government grants, and internally created intangibles. Limited-life intangibles are amortized over their useful life or legal life using methods like straight-line amortization, while indefinite-life intangibles are tested annually for impairment without amortization. Goodwill represents the excess of the cost of an acquisition over the fair value of identifiable net assets and is also tested annually for impairment. Research and development costs are generally expensed as incurred.

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James Lustre dela Cruz
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22 views4 pages

Intangible Assets

Intangible assets are identifiable, non-monetary assets without physical substance. They include purchased intangibles, intangibles from business combinations, government grants, and internally created intangibles. Limited-life intangibles are amortized over their useful life or legal life using methods like straight-line amortization, while indefinite-life intangibles are tested annually for impairment without amortization. Goodwill represents the excess of the cost of an acquisition over the fair value of identifiable net assets and is also tested annually for impairment. Research and development costs are generally expensed as incurred.

Uploaded by

James Lustre dela Cruz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

INTANGIBLE ASSETS

Characteristics

 Identifiable
o Separable from company
o Arise from legal/contractual rights
 Lack physical existence
o Rights and privileges
 Not monetary assets
 Non-current assets

Valuation

 Purchased intangibles
o At cost
 Acquisition costs
 Expenditures necessary for intended use
o In exchange of shares or other assets
 FV of considerations given
 FV of intangibles received
o Basket purchase (combination of tangible and intangible)
 Allocate cost in basis of FV
 Business combination
o FV at acquisition date
 Government grant
o FV or nominal amount
 Internally created intangibles
o Patents
o Computer software
o Copyrights
o Trademarks
 Research and development (R&D) costs
 Research phase
o Expensed
 Development phase
o Expensed
o Capitalized if economic viability is met

Amortization of intangibles

 Limited-life intangibles
o Amortized to shorter of its useful life and legal life
 Cost – Residual value
 Reflect pattern in the use of asset
 Straight-line method
o Charged to expensed
 Cr Intangible asset/Accumulated amortization
o Tested to impairment annually
 Carrying amount > Recoverable cost*
*Higher of FV less cost to sell and Value in use
 Indefinite-life intangibles
o Not amortized
o Tested for impairment annually

Types of intangibles

 Marketing-related intangible assets


o Trademarks/tradenames
 Indefinite life
 Not amortized
o Newspaper mastheads
 Purchased
 Amortized over useful life
 Internally generated
 Expensed
o Internet domain names
 Planning
 Expensed
 Application and infrastructure
 Intangible asset if meets conditions
 Graphical design
 Intangible asset if meets conditions
 Content development
 Capitalized as intangible asset if
o Used internally
o Used externally (can place order)
 If for promotion only
 Expensed
 Operating
 Expensed
o Non-competition agreements
 Customer-related intangible assets
o Customer lists, order or production backlogs
 Internally generated
 Expensed
o Contractual and non-contractual consumer relationships
 Artistic-related intangible assets
o Ownership rights to plays
o Literary works
o Musical works
o Pictures
o Photographs
o Video
o Audiovisual materials
 Protected by copyrights
 Granted for life of creator + 50 years
 Contract-related intangible assets
o Franchise and licensing agreements
o Construction permits
o Broadcast rights
o Service/supply contracts
 Technology-related intangible assets
o Patented technology and trade secrets
 Product patents
 Process patents
 20 years

Goodwill

 Cost of purchase – FV of identifiable net assets purchased*


*assets – liabilities
 Plug/gap filler/master valuation account
 Recording
o Internally created
 Not capitalized in the accounts
o Purchased
 Recorded when entire business is purchased
 Excess of cost over FV of identifiable net assets acquired
 Write off
 Bargain purchase
o Purchaser pays less than the FV of identifiable net assets
 Recorded as gain by purchaser

Impairment of intangible assets

 Impairment of limited-life intangibles


o Carrying value – Recoverable amount = Impairment
 Dr Impairment loss
Cr Intangible asset/Accumulated impairment losses
 Reversal of impairment loss
o Dr Intangible asset/Accumulated impairment losses
Cr Recovery of impairment loss
 Impairment of indefinite-life intangibles other than goodwill
o Impairment test annually
o Carrying value – Recoverable amount = Impairment
 Impairment of goodwill
o Impairment test annually
 Based on cash-generating units to which goodwill is assigned
 Dr Loss on impairment
Cr Goodwill
o Impairment reversal not permitted

Research and development costs

 Expensed as incurred
 Accounting
o Materials, equipment, facilities
 Expense entire cost
 If have alternative future uses
 Carry to inventory
o Capitalize and depreciate as used as R&D/allocate as consumed
o Personnel
 Salaries
 Wages
 Other related costs
o Purchased intangibles
 Measured and recognized at FV
 After initial recognition
 Account for according to its nature
o Contract services
o Indirect costs
 Costs similar to R&D costs
o Start-up costs for new operation
 Expense as incurred
o Initial operating losses
 Not capitalized
 Advertising costs
o Expense as incurred

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