study guide chapter 12

study guide chapter 12 - Intangible Assets Result from...

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Intangible Assets Result from legal or contractual rights, do not have physical substance Accounting for Intangibles Recorded at cost Those that are amortized are reported on a company’s balance sheet at their book value (cost – accumulated amortization) Principles used for determining the acquisition cost, capital and operating expenditures, impairment, and disposal apply to both tangible and intangible assets Cost of intangibles Identifiable intangible assets include items like: patents, franchises, and trademarks Primary unidentifiable intangible asset is goodwill Accounting for the cost of intangibles o Purchased identifiable intangibles Accounted for in same way as we would account acquisition of a single asset An example would be purchasing a patent o Purchased unidentifiable intangibles Capitalize the cost Goodwill is the major example Only acquire goodwill through the purchase of another company or segment of a company o Internally developed identifiable intangibles Only certain costs are capitalized Costs of patent include the legal and related costs of establishing the rights associated with a patent, but not the costs of developing the product Costs involved with developing the product are expensed as research and development o Internally developed unidentifiable intangibles Expenses the cost of internally developed unidentifiable intangibles as incurred, even if they may be expected to have benefits extending beyond current period Examples are: employee training and design of quality products Amortization or Impairment of Intangible Assets Intangible assets with finite life are amortized o Amortized over its useful life o Calculate the same was you do depreciation of tangibles o Example
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Dr patent Cr cash Dr amortization expense (or factory OH) Cr accumulated amortization: patent Intangible assets with an indefinite life are reviewed for impairment o Intangible asset with indefinite life is not amortized but reviewed for impairment o Testing for impairment Estimating the fair value of the asset (current market value) It is impaired if the fair value is less than its carrying value (bv) Impairment loss is carrying value – fair value How do you record: Dr impairment loss account Cr intangible asset account Research and Development Costs Company must expense all its research and development costs as incurred Costs of activities excluded from R&D are either expensed or capitalized according to normal capitalization criteria o Materials, equipment, and facilities o Personnel o Intangibles purchased from others o Contract services o Indirect cost (however, general administrative costs not associated
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study guide chapter 12 - Intangible Assets Result from...

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