Intangible asset - Dr.JamesGong Agenda n n assets Practiceproblems intangibleassets Groupexercise Limitationof

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Click to edit Master subtitle style Accounting for Intangibles Dr. James Gong
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Agenda n What are intangible assets? n Financial accounting for identifiable intangible  assets n Practice problems n Financial accounting for non-identifiable  intangible assets n Group exercise n Limitation of financial accounting for 
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0.0 0 1.0 0 2 . 0 0 3.0 0 4 . 0 0 5.0 0 6 . 0 0 7.0 0 8 . 0 0 Dec- 95 Mar- 96 Jun- Se p- 97 Sep- 98 Ju n- 99 Ma r- 00 01 02 M on th Market-To- Book S&P 500 Average Market-To-Book Ratio: 1995- 2002
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Questions about the Chart  n Why did market values diverge from book  values?
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Questions about the Chart  n Why did market values diverge from book  values? n Is it because some information is not included  in the financial statements?
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Interpretation  n This means that traditional accounting  measures of book value of net assets  represent about 25% of the value of the   net assets. n Many intangible assets (excess earnings  power) are missing from financial  statements
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What Are Assets?
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Assets (FASB Concepts 6) Assets are probable future economic benefits obtained or controlled by a  particular entity as a result of past transactions or events. n Criteria to be considered an asset: n Defined and distinct n Effective control n Possible to predict future economic benefits n Possible to determine impairment n Asset examples: n Property, plant, equipment n Financial assets What Are Assets?
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n A non-monetary asset without physical substance  n Examples of possible intangible assets include:  n Computer software  n Patents  n Copyrights  n Motion picture films  n Customer lists  n Mortgage servicing rights  n Licenses  n Import quotas  n Franchises  What Are Intangible Assets?
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n Lack of physical substance n Long-lived n Scalability n Increasing returns to scale n Non-rivalry and partial excludability n Use by one user does not preclude the use by another  user n Network effects n Metcalf’s law – the value of the network increases  geometrically with each new user n Software Intangible Assets  Characteristics (I)
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n High degree of uncertainty about future benefits to be  derived n 10% of patents account for 81-93% of total patent value n Most new products fail n investments n Non-tradability  n No organized and competitive markets n Measurement and valuation difficult without market prices n None or little value if projects abandoned n Companies cannot use all of their innovations and there is no  market for selling them (except patent licensing and royalties Intangible Assets  Characteristics (II)
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This note was uploaded on 09/25/2010 for the course ACCY 302 taught by Professor Chen during the Fall '09 term at University of Illinois at Urbana–Champaign.

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Intangible asset - Dr.JamesGong Agenda n n assets Practiceproblems intangibleassets Groupexercise Limitationof

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