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Unformatted text preview: 12 INTANGIBLES CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Explain the accounting alternatives for intangible assets. 2. Record the amortization or impairment of intangibles. 3. Identify research and development costs. 4. Explain the conceptual issues for research and development costs. 5. Account for identifiable intangible assets including patents, copyrights, franchises, computer software costs, and trademarks and tradenames. 6. Account for unidentifiable intangibles, including internally developed and purchased goodwill. 7. Understand goodwill amortization. 8. Understand the disclosure of intangibles. 9. Explain the conceptual issues regarding intangibles. 12-1 SYNOPSIS Nature of and Accounting for Intangible Assets 1. Intangible assets, which generally result from legal or contractual rights, do not have a physical substance. Like tangible noncurrent assets, intangible assets are held for use rather than investment; have an expected life of more than one year; are valuable because of their ability to generate revenue for their owners; and are expensed in the periods when their benefits are received if the assets have finite lives. Four additional characteristics of intangible assets distinguish them from tangible assets: (a) There is generally a higher degree of uncertainty regarding the future benefits of intangibles. (b) The value of intangibles is subject to wider fluctuations because it may depend considerably on competitive conditions. (c) Intangibles may have value only to a particular company. (d) Goodwill and intangible assets with indefinite lives are not expensed. 2. Accounting for intangible assets follows some of the general principles used for tangible assets. Some intangibles are amortized, while others are not but are reviewed for impairment. Intangible assets that are amortized are reported on a companys balance sheet at their book values (cost accumulated amortization). Amortization follows the same principles as depreciation. Similar principles apply to both intangible and tangible assets in regard to determining the acquisition cost, impairment, and disposal. 3. Companies may classify intangible assets as either purchased or internally developed , and as either identifiable or unidentifiable . Accounting for the costs of intangibles is discussed in FASB Statement No. 142 : (a) Companies capitalize the costs of purchased identifiable intangibles (for example, purchased patents)....
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