Chpt 12 - Chapter 12 Intangible Assets Lack physical...

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Chapter 12 Intangible Assets Lack physical substance (patents, copyrights, franchises, licenses, trademarks, trade names, goodwill) They are NOT financial instruments (A/R, notes and bonds receivable,….ect.) Valuation : Record at cost (everything necessary to make asset ready for intended use). For internally-generated intangibles, only direct costs are capitalized (e.g., legal costs for patent). If insignificant cost, then usually expensed. Amortization:* Limited-life intangibles—over useful life. Amortizable base equals cost minus residual value. Indefinite-life intangibles—do NOT amortize. * Usually decrease the value of the asset directly, can use a contra-account: Accum. Amort. Accounting 302 Chapter 12 (Intangibles) -1-
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“Types” of Intangible Assets Legal Amortization life Period Market-related: Trademark Indefinate, Company name renewable Not amortized Customer-related: Customer lists None Lesser of useful or economic life. Artistic-related: Copyrights Life of creator Lesser of useful or plus 70 years economic life. Contract-related: Franchises Length of Length of Licences contract or contract or Permits indefinite not amortized Technology-related: Patents 20 years Less of useful or legal life. Goodwill: None Not amortized Recording Goodwill Duncun Corp. purchased the Fran Company for $300,000 on December 31, 2003. The balance sheet of Fran Company just prior to acquisition and appraisal of the fair values of identifiable net assets is listed below: Fran Company BALANCE SHEET December 31, 2003 ASSETS Carrying Values Fair Values Increase (decrease) Cash $15,000 $15,000 -0- Receivables 10,000 10,000 -0- Inventories (LIFO) 50,000 70,000 $20,000 PPE 80,000 130,000 50,000 Total Assets $155,000 $225,000 Net Assets = $130,000 $200,000 EQUITIES Current liabilities $25,000 $25,000 -0- Capital stock 100,000 Retained Earn. 30,000 Total Equities $155,000 Accounting 302 Chapter 12 (Intangibles) -2-
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Acquisition Journal entry: Cash $ 15,000 Receivables 10,000 Inventories 70,000 PPE 130,000 Goodwill (plug) 100,000 Current Liabilities 25,000 Cash 300,000 All identifiable net assets acquired are recorded at FairV and Goodwill is plugged for the difference between purchase price and FairV of identifiable net assets acquired. Goodwill is not amortized. * Must annually check for impairment. If the FairV of net assets acquired is greater than the purchase price then you have negative goodwill (or badwill)—FASB requires that the excess be recognized as an extraordinary gain . Accounting 302 Chapter 12 (Intangibles) -3-
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Impairments of Intangibles Two questions: (1) Has an impairment occurred? (2) How much impairment loss? Three different approaches: (1) Limited-life intangibles—same 2-step test as for PPE.
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Chpt 12 - Chapter 12 Intangible Assets Lack physical...

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