AFM291-ch12

AFM291-ch12 - IntangibleAssetsand Chapter 12 Goodwill AFM...

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AFM 291 chapter 12 1     Chapter 12 Chapter 12                                           Intangible Assets and  Intangible Assets and   Goodwill  Goodwill
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AFM 291 chapter 12 2 Drivers of Economic Growth The ratio of intangible business capital to tangible: 1982 38% (intangible) to 62% (tangible) 2002 75% to 25% See market to book ratio of listed companies http://biz.yahoo.com/p/sum_prid.html Interesting article on the valuation of intangible assets: “Grey Matters: CFO's Third Annual Knowledge Capital Scorecard” by Andrew Osterland (April 2001) http://www.cfo.com/article.cfm/2992913/1/c_3046504
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AFM 291 chapter 12 3 Steve Wallman ex-Commissioner of the SEC As a lawyer, regulator, and now entrepreneur, I have come to the firm belief that our disclosure system – which is no doubt the finest and most transparent on the planet is increasingly incapable of capturing the effect of intangibles on a company. The system was conceived and developed in a brick-and-mortar economy, not an Intangible Economy. I wonder at what point disclosures and reporting becomes so ill-suited to the intangible economy that it no longer facilitates transparency and openness. If the disconnect worsens substantially, I fear it will become much more difficult for people to understand how companies operate, generate profits, and compare to other companies here and abroad.
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AFM 291 chapter 12 4 Definition of Assets and Recognition Criteria DEFINITION: Assets are economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. RECOGNITION CRITERIA: (1) reliable measurement and (2) probable future economic benefits An item is not recognized as an asset either because it does not meet the definition of an asset or it does not meet the recognition criteria
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AFM 291 chapter 12 5 Characteristics Intangible assets must meet all of the following characteristics: 1. They are identifiable , having at least one of the following characteristics: i. Results from contractual or legal rights, or ii. Can be separated from the entity and sold, rented, exchanged, transferred or licensed 2. They lack physical substance , and 3. They are non-monetary Identifiable intangibles with similar characteristics should be grouped and reported together
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AFM 291 chapter 12 6 Recognition and Measurement at Acquisition Purchased Intangibles Measured at cost—fair value at acquisition Cost follows same definition as with tangible capital assets Recognition of purchased identifiable intangibles is generally straightforward (WHY?) Identifiable intangibles: 1) result from contractual/ legal rights and 2) separable from the entity Identifiable intangibles with similar characteristics should be grouped and reported together
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AFM 291 chapter 12 7 Recognition and Measurement at Acquisition Purchased Intangibles Recognition of intangible assets purchased as
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This note was uploaded on 12/10/2010 for the course AFM 291 taught by Professor Clark during the Spring '10 term at Waterloo.

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AFM291-ch12 - IntangibleAssetsand Chapter 12 Goodwill AFM...

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