Intangibles
- An identifiable monetary asset without physical subtance
Essential Criteria
1. Identifiable (meaning na se-separate sya) exception: Goodwill
2. Control
3. Furture Economic Benefits
Identifiable Intangible Assets Unidentifiable intangiable asset
a. patent a. Goodwill
b. Copyright
c. Franchise
d. Trademark/ Brand name
e. Customer list
f. Computer software
h. Broadcasting License, airline right and
fishing rigths
Measurement
Initial Subsequent
At cost Cost model
(there are different mode of acquisition) Revaluation model
Classification
1. intangible asset with definite life (if may hangganan ng legal right, contractual right,
competetive advantage then it is has definit life)
(subsequent measurement through systematic allocation or amortization)
2. intangible asset with indefinite life
(how do you measure the subsequet of indefinite life intangible?;
Amortization
- Is the systematic allocation of the amortizable amount of an intangible asset over the
useful life.
(Useful life: it is the service life legal right, contractual right, competetive advantage)
How to allocate?
-Straigth line if walang scenario ang problem ( pero may mga ibang pattern pa)
-The assumption na walangb binigay na scenario then of the residual amount is 0
-there can be a change in the pattern/change in accounting estimate therefore (the treatment is
currently and prospectively
You Need to determine the
Remaining cost/remaining life to find the new amortization expense for the intangible asset
IF INDEFINITE
Kung magkano original cost then maari yun din ang gagamitin hanggang dulo if cost model
gamit
If revaluation model, therefore kung anong fair value yun yon
((PERO kahit anong gamitin na model may nangyayari which is IMPAIRMENT))
Summary
Normally in definite we amortize and test for impairment
And if indefinite life we test for impairment to know the value
MEASUREMENT OF INTANGIBLE ASSET: at cost
(ano ba yung cost na iyan?), it depends on how the entity acquire the intangible asset which lima
sila)
a. Separate acquisition: cash payment (add mga directly attributable cost)
b. Acquisition as part of business combination: (what is business combination; nag sama ang
dalawang business ex. Jollibee binili c inisal)
nakasama yung pag bili nung asset, how do you measure?
GENERAL RULE: the best way of measurement of an asset is FV of the asset
(pinakamahirap na topic sa advance accth yung business combination sabi daw)
c. Acquisition by way of gov’t grant: (ex. Landing right)
How do we measure?
FMV: Fair market value If walang FV then ZERO or nominal value
(kung magkano binayaran mo) Nominal +
directly attributable cost
d. Acquisition by exchange: (nag kakaroon ka ng intangible asset na hindi nag babayad ng pera
kundi nag papalitan lng)
There are two ways of exchange
-with commercial substance: yung ibibigay mo ay hindi katulad sa makukuha mo
If commercial substance we measure at FMV of asset given up if walang FMV then the
carrying amount should be used.
(the idea is hindi ka mag bibigay ng isang bagay na hindi kapantay nung makukuha mo)
-without commercial substance: parehas na item lng ang pinag papalit
Measured at carrying amount of the asset given up
MAY HALONG CASH
[ ikaw ang nagbigay then we capitalized; if ikaw nakatanggap deduct]
e. Internally generated
- add all the directly attributable cost to measure it (ex. Cost of registration, materials used,
employee expenses)
If gumamit ng isang intangible asset to produce another one then the amortization of it we add to
the internally generated
SUBSEQUENT EXPENDITURE
-Generally, treated as Expense (expense because para sya ma-maintain)
-Capitalized if it can ENHANCE the intangible asset
(if it can increase the capacity, extend the life, efficiency) normally happens in patent.
DERECOGNITION
a. on disposal (binenta mo)
b. when no economic benefits are expected from use and disposal of the asset
GENERAL RULE: if derecognition of asset then there will be a gain or loss. (when we
derecognize, we are comparing the carrying amount with the proceeds; if walang proceeds then it
is a loss)
ADDITIONAL INFO
About internally generated intangibles: mga trademark, mask heads customer list they are not
capitalized because it did not meet the criteria of it becoming internally generated
RECOGNITION OF GOODWILL
(marami na nabago sa acctg treatment sa kanyang recognition)
Marerecognize lng ang goodwill sapag purchase through business combination and
internally generated is not allowed
/ PURCHASE GOODWILL
X Internally Generated Goodwill (because it cannot be measured)
Goodwill
Arises when earnings exceed normal earnings by reason of good name, capable staff and
personnel, high credit standing reputation for fair dealings, reputation for superior products,
favorable location and a list
(merong goodwill if ang earnings ay mas mataas kaysa sa normal na kita sa industry because of
Maganda ang reputation etc.)
Measurement of Goodwill
1. Residual Approach
2. Direct Approach
Residual Approach
Acquisition Price xxx
FMV of Net Assets (xx)
Goodwill === xxx
Net asset= assets-Liabilities
Direct Approach
(to do that we have to take note “normal Earnings”)
There are 4 ways to do direct approach
1. Purchase of “average Excess earnings”
Average Earnings xxx (totoong kita nya [ex. average for the last 5 years])
Normal Earnings (xxx) (kita sa industry)
*Average Excess earnings xxx
Multiply by: Years of excess xxx
Earnings
Goodwill xxx
4. Present value Method
1. Purchase of “average Excess earnings”
Average Earnings xxx
Normal Earnings (xxx)
*Average Excess earnings xxx
Multiply by: Years of excess xxx
Earnings At PV
Goodwill xxx
2. Capitalization of “average Excess Earnings”
Average excess Earnings xxx
Divided by Capitalization rate x/
Goodwill xxx
3. Capitalization of “average Earnings”
Average Earnings xxx
Divided by: capitalization rate xxx/
Net Asset, Including goodwill xxx
Net Asset, Excluding Goodwill (xxx)
Goodwill xxx
IMPAIRMENT OF GOODWILL
Ang goodwill normally indefinite ang kanyang life pero nag kakataon na nababawasan sya
Pero ang pag bawas ay hindi through amortization kundi IMPAIRMENT
-not Amortize
-tested for impairment atleast ANNUALLY and whenever there is an implication of impairment
NEGATIVE GOODWILL: GAIN
The situation where acquisition price is mas mababa kaysa sa FMV of the asset (binibili
na bargain)
Acquisition price xxx
FMV of Net Assets xxx
Gain on Bargain Purchase (xxx)
PATENT
Is an exclusive right granted by the government to an inventor enabling him/her to
control the manufacture, sale or other es of invention for a specified period of time
(is syang exclusive right)
-naging intangible kasi hindi sya nakikita
Pero bakit sya asset? (because pasok sya diyun sa tatlong criteria
Identifiable: kasi meron syang license or pangalan (Bureau of Patent)
Control: kasi sya lang ang pwedeng mag manufacture sa invention
LEGAL LIFE: (R.A. No. 8293): 20yrs
MEASUREMENT OF PATENT
By purchase
a. Purchase price
b. Import Duties
c. Non-Refundable Tax
d. Any directly Attributable cost of preparing tha asset for the intented use
Internally generated
a. Licensing and other related legal fee in securing patent rights
b. Development cost* (from the time of technological feasibility up to the before
commercial production)
GENERAL RULE: Mag sisimula capitalization from the start of getting the license
Amortization of Patent
(the concept of amortization if hinahanap yung service life)
: Purchase – Remaining legal life or useful life whichever is shorter.
: Internally developed- Legal life or useful life whichever is shorter.
: Related Patent- Extended life (plastic bag no? tas may nahanap na titibay yung plastic bag
madadagdagan yung life)
(it enhances the patent of yours)
Like we amortize no, Original patent + new patent = extended life (capitalize)
Capitalized if
-Extend the life /
-Improve efficiency
-Increase the capacity
: Competing patent- Remaining life of old patent (kase hindi namn gagamitin yung competing
patent, therefore tuloy tuloy lng yung patent natin)
(binili yung kalaban kung baga para wala ng competition)
GENERAL RULE: titingnan ang useful life at legal, pipiliin sa dalawa whichever is shorter then
sya na ang denominator.
NORMAL JOURNAL ENTRIEs
Amortization expense
Patent
IMPAIRMENT OF PATENT
Whenever there is an indication of impairment then test for impairment
-ang unang hinahanap sa impairment ay yung book value then minus the book value
COST OF LITIGATION
(like ang idea nag dedemand na yung patent ay kopya lng kaya matatanggal or not)
Successful
Unsuccessful
(expense kasi minaintain lng yung patent)
Pag natalo ikaw, then there is a write off of patent
Journal Entry
PATENT WRIGHT OFF
PATENT
