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ch12Summary - CHAPTER 12 Intangible Assets LEARNING...

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CHAPTER 12 Intangible Assets LEARNING OBJECTIVES 1. Describe the characteristics of intangible assets. lack physical existence, and not financial instrument. 2. Identify the costs to include in the initial valuation of intangible assets. 3. Explain the procedure for amortizing intangible assets. 4. Describe the types of intangible assets. 5. Explain the conceptual issues related to goodwill. 6. Describe the accounting procedures for recording goodwill. 7. Explain the accounting issues related to intangible-asset impairments. 8. Identify the conceptual issues related to research and development costs. 9. Describe the accounting for research and development and similar costs. 10. Indicate the presentation of intangible assets and related items. *11. Understand the accounting treatment for computer software costs. *This material is covered in an Appendix to the chapter. CHAPTER REVIEW *Note: All asterisked (*) items relate to material contained in the Appendix to the chapter. 1. Chapter 12 discusses the basic conceptual and reporting issues related to intangible assets. Valuing and Amortizing Intangibles 2. (L.O. 1) The characteristics of intangible assets are: (1) they lack physical existence, and (2) they are not a financial instrument. The most common types of intangibles reported are patents, copyrights, franchises, licenses, trademarks, trade names, and goodwill. 3. (L.O. 2) Cost is the appropriate basis for recording purchased intangible assets . Like tangible assets, cost includes acquisition price and all other expenditures necessary in making the asset ready for its intended use —for example, purchase price, legal fees, and other incidental expenses. When intangibles are acquired for consideration other than cash, the cost of the intangible is the fair market value of the consideration given or the intangible asset received, whichever is more clearly evident. Costs incurred to create internally-created intangibles are generally expensed as incurred. Amortization of Intangibles 4. (L.O. 3) Intangibles have either a limited (finite) useful life or an indefinite useful life. An intangible asset with a limited life is amortized; an intangible asset with an indefinite life is not amortized.
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Limited-Life Intangibles 5. The expiration of intangible assets is called amortization. Limited-life intangibles should be amortized by systematic charges to expense over their useful life. The useful life should reflect the periods over which these assets will contribute to cash flows. 6. The amount of amortization expense for a limited-life intangible asset should reflect the pattern in which the asset is consumed or used up, if that pattern can be readily determined. If not, the straight-line method of amortization should be used. When intangible assets are amortized the charges should be shown as expenses, and the credits should be made either to the appropriate asset accounts or to separate accumulated amortization accounts. The amount of an intangible asset to be amortized should be its cost less residual value.
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