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Unformatted text preview: 588 C H A P T E R 12 INTANGIBLE ASSETS LEARNING OBJECTIVES After studying this chapter, you should be able to: Since 2000, the intangibility indexthe ratio of research and development (R&D) to capital spending (multiplied by 100) has risen for nine of the ten biggest companies that report R&D. For example, in the following table, Procter & Gamble shows a 41% increase in its intangibility index. Measuring the Intangible Intangibility Index Company 2000 2005/2006 Exxonmobil 5.1 4.4 GE 73.6 100.7 Microsoft 429.1 761.6 Procter & Gamble 62.9 89.0 Pfizer 211.0 295.4 Johnson & Johnson 183.8 239.2 Altria 32.0 42.3 Chevrontexaco 2.2 2.9 Intel 58.4 88.4 IBM 95.6 129.9 All 10 56.8 79.1 Overall Change 2000Latest R&D Spending 42.1% Capital Spending 2.1 Describe the characteristics of intangible assets. Identify the costs to include in the initial valuation of intangible assets. Explain the procedure for amortizing intangible assets. Describe the types of intangible assets. Explain the conceptual issues related to goodwill. Describe the accounting procedures for recording goodwill. Explain the accounting issues related to intangible-asset impairments. Identify the conceptual issues related to research and development costs. Describe the accounting for research and development and similar costs. Indicate the presentation of intangible assets and related items. 10 9 8 7 6 5 4 3 2 1 PDF Watermark Remover DEMO : Purchase from to remove the watermark 589 However, as shown in the following graph, the metrics used by the government to track the economy do not ade- quately capture investments in intangibles. That is, the gap between the official government economic measures, based on capital expenditures and the same measures adjusted for intangible investments, has been increasing in recent decades. P R E V I E W O F C H A P T E R 1 2 INTANGIBLE ASSET ISSUES TYPES OF INTANGIBLES IMPAIRMENT OF INTANGIBLES RESEARCH AND DEVELOPMENT COSTS PRESENTATION OF INTANGIBLES AND RELATED ITEMS Characteristics Valuation Amortization Limited-life intangibles Indefinite-life intangibles other than goodwill Goodwill Summary Identifying R&D Accounting for R&D Similar costs Conceptual questions Intangible assets R&D costs Marketing-related Customer-related Artistic-related Contract-related Technology-related Goodwill INTANGIBLE ASSETS As our opening story indicates, the accounting and reporting of intangible assets is taking on increasing importance in this information age, especially for companies like Microsoft Corp. , Pfizer Inc. , and IBM . In this chapter we explain the basic conceptual and reporting issues related to intangible assets. The content and organization of the chapter are as follows....
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