Main_ideas_in_CH 12 Handout Solution 1

Main_ideas_in_CH 12 Handout Solution 1 - BASIC OVERVIEW OF...

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Unformatted text preview: BASIC OVERVIEW OF INTANGIBLES ASSETS 1. Chapter 12 discusses the basic conceptual and reporting issues related to intangible assets. The characteristics of an intangible asset are: (1) they lack physical existence, and (2) they are not a financial instrument. The different types of intangibles by major category are listed at the end of the handout. 2. COST is the appropriate basis for recording purchased intangible assets. Like tangible assets, cost includes acquisition price and all other expenditures neces sary in making the asset ready for its intended usefor example, purchase price, legal fees, and other incidental expense s. 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 1. Intangibles with limited (finite) useful lives are amortized. 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. AMORTIZATION is the accounting term for allocating the cost of intangibles to the production of revenue just like depreciation allocates the cost of tangible assets to the production of revenue each period. 2. If no legal, regulatory, contractual, competitive, or other factors limit the useful life of an intangible asset, the useful life is considered indefinite. Intangible assets are not amortized if there is an indefinite life, much like land is not amortized as a tangible asset. 3. Unlike tangible assets, the amortization of limited life intangible assets is generally offset directly against the balance sheet asset. For example if, we had a $10,000,000 building that was depreciated $1 million each year, the balance sheet for the first five years would look as follows:...
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This note was uploaded on 05/07/2010 for the course ACCT 306 taught by Professor Intermediateaccounting during the Spring '10 term at Winthrop.

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Main_ideas_in_CH 12 Handout Solution 1 - BASIC OVERVIEW OF...

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