Separable
Identifiability Contract or Legal Rights
INTANGIBLE ASSETS Attributes Control Risk and rewards
Future economic benefits Increased revenue
Cost reduction
Identifiable non-monetary assets
Without physical substance
Examples:
a. Marketing related: Brand names, Internet domain name, Trademarks, Newspaper mastheads,
Noncompetition agreements
b. Customer related: Customer lists, Order or production backlogs, Customer relationships
c. Artistic related: Copyrights
d. Contract based: Franchises, Licensing agreements, Construction permits, Broadcast rights, Service or
supply contracts
e. Technology-based: Patent, trade secrets
INTANGIBLE ASSETS
Initial Recognition
At COST
Separate Acquisition Business Government Exchange Self-creation
1. Cash Combination Grants 1. Research costs – EXPENSED
2. Installment basis 2. Development costs – TIAPAR
3. Thru stocks i. Technical feasibility
i. FV of asset received ii. Intention to complete and sell
ii. FV of shares issued iii. Ability to use or sell
iii. Par value of shares issued iv. Probable future economic ben.
4. Thru bonds payable v. Adequate resources to complete
i. FV of bonds payable issued vi. Reliably measured
ii. FV of asset received
iii. Face value of the BP issued Assets that cannot be capitalized:
a. Internally generated brands
b. Mastheads
c. Customer lists and similar items
d. Publishing titles
INTANGIBLE ASSETS
Subsequent Recognition
Cost Model Revaluation model
Cost
less any amortization and impairment losses
Rules on Amortization and Impairment:
1. Based on useful life of assets:
i. Definite life: amortized annually; subjected only to test of impairment if there are
indicators
ii. Indefinite life: not amortized but subjected to test of impairment at least annually
2. The amortization method shall reflect the pattern in which the asset is consumed, but if
cannot be reliably determined, use the STRAIGHT-LINE METHOD.
3. Residual Value is ZERO, unless:
i. Third party commitment, or
ii. Active market will exist at the end of useful life
PATENT
Cost:
a. When purchased: Purchase price + directly attributable costs
b. When internally-generated: Licensing and other related legal fees
Expensed Immediately:
1. Research and development costs
2. Legal fees and other costs of whether successfully or unsuccessfully prosecuting or
defending the patent
Amortization of Patent
1. Over the legal life (20 years) or the useful life, whichever is SHORTER.
2. If a competitive patent is acquired, competitive patent and original OLD patent will be
amortized over the remaining life of original OLD patent
3. Acquisition of related patent
i. Extension of life – both are amortized over the extended life
ii. No extension of life
a. NEW patent – over its own life
b. Original OLD patent – over the remaining useful life
TRADEMARK
Cost
a. When purchased: Purchase price + directly attributable cost to the acquisition
b. If internally developed: Filing fees, registry fees, and other expenses in securing the trademark
Amortization of Trademark
The legal life of trademark is 10 years and may be renewed for periods of 10 years each. Because
of easy renewal, it is to be classified as intangible asset with indefinite life. Therefore, trademark is
not amortized but tested for impairment at least annually.
COPYRIGHT
Cost
a. Developed copyright: Expenses incurred in production of work including to obtain the right
b. Purchased: Cash paid, and other expenses incidental to the acquisition
Useful Life
During the lifetime of author and for fifty (50) years after his death
Amortization of Copyright
Shall be based on the copyright’s useful life but practically, the cost is written off against the
revenue of first printing
FRANCHISE
Cost
a. Initial franchise fee – capitalized as cost of franchise
b. Continuing franchise fee – considered as operating expense of the company
Amortization of Franchise
a. Granted for definite period – amortized over the useful life or definite period, SHORTER
b. Granted indefinitely – not amortized but tested for impairment at least annually
