CH 12 - Notes.word


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CHAPTER 12 GOODWILL + OTHER INTANGIBLE ASSETS INTANGIBLES : Characteristics CICA Handbook, Section 3062 , broadly defines intangible assets as: Assets that are lacking in physical substance, and Assets that are not financial instruments Examples of intangible assets: patents, copyrights, franchises, and trademarks RECOGNITION + MEASUREMENT AT ACQUISITION : Purchased Intangibles Measured at cost Cost includes all expenditures that are necessary to get the intangible asset ready for its intended use (e.g., purchase price, legal fees) If intangible assets are exchanged for non-monetary assets, the fair value of the item given up or the fair value of the intangible received is used to determine cost For a “basket purchase” of intangibles, the cost is allocated based on fair values Identifiable Intangibles: Are recognized separately Must have at least one of the following characteristics: 1. Results from contractual or legal rights, 2. They can be separated from the entity and sold, rented, ex- changed, transferred or licensed Identifiable intangibles with similar characteristics should be grouped and reported together Internally Developed Intangibles Costs that a company incurs internally to create intangibles (such as patents and brand names) are generally expensed Deferred Charges Costs incurred that benefit future periods It has become less acceptable to recognize deferred charges unless the costs meet the definition and recognition requirements of Section 1000 ACCOUNTING FOR THE ACQUISITION COSTS OF INTANGIBLES :
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Type Manner Acquired Purchased Internally Created Identifiable Capitalize Generally Expense Goodwill-Type Capitalize Expense Other Internally Developed Capitalize restricted amounts for both MEASUREMENT AFTER ACQUISITION : An intangible asset with finite (or limited) useful life is amortized over its useful life Intangibles assumed to have no residual value, unless: There is a commitment to purchase, or There is an observable market An intangible asset with an indefinite useful life is not amortized and an impairment test is carried out at least annually VALUATION AFTER ACQUISITION : Factors to consider when determining useful life of an intangible asset: Expected future usage Legal, regulatory, or contractual provisions that may limit useful life Effects of technological or commercial obsolescence Level of maintenance expenditures required to obtain future benefits Method of amortization chosen should match benefits received, otherwise, straight- line amortization used TYPES OF INTANGIBLES : Six major categories for intangibles: 1. Marketing-related 2. Customer-related 3. Artistic-related 4. Contract-based 5. Technology-based 6. Goodwill MARKETING-RELATED INTANGIBLES : Used in marketing and promotion Include: Trademarks or trade names Newspaper mastheads Internet domain names Non-competition agreements
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