CHAPTER 12 Intangible Assets

CHAPTER 12 Intangible Assets - 12-1CHAPTER 12Intangible...

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Unformatted text preview: 12-1CHAPTER 12Intangible Assets12-2LECTURE OUTLINEThis chapter can be covered in one or two class sessions. Students generally do nothave difficulty in understanding the accounting procedures related to the capitalizationof intangibles and their subsequent amortization. Illustrations 12-2 and 12-3providenumerical examples of recording goodwill (master valuation approach) and developingan approximate value for goodwill (excess earning power approach).A. Intangible Asset Issues: Characterized by a lack of physical existence, and a highdegree of uncertainty concerning future benefits.1.Characteristics:a.Identifiability.b.Manner of acquisition: Whether singly, in groups, in businesscombinations, or developed internally.c.Expected period of benefit.d.Separability from an entire enterprise.2.Valuation:a.Purchased intangibles:Intangibles should be recorded at cost, whichincludes all expenditures necessary to make the intangible asset ready forits intended use.b.Internally created intangibles: only the direct costs incurred in obtainingthe intangible asset, such as legal costs are capitalizable. All research anddevelopment costs are expensed as incurred.12-33.Amortization:Amortized by systematic charges over their useful lives.Factors to be considered in determining useful life include legal provisions andeconomic factors such as obsolescence and expected actions of competitors.a.Generally amortized on a straight-line basis.b.Amorization period may not exceed 40 years.c.Amortization is usually credited against the asset account.B. Specifically Identifiable Intangibles: Costs associated with obtaining a givenintangible asset can be identified as a part of the cost of that asset.TEACHING TIPIllustration 12-1can be used to present an overview of the types of intangible assetsthat are externally acquired or internally developed.1.Patents. The holder has the exclusive right to use, manufacture, and sell aproduct or process for a period of 17 years.The cost of the patent should beamortized over the shorter of its legal life, 17 years, or its useful life.2.Copyrights.The legal life is the life of the creator plus 50 years but suchassets are written off over the period benefited (not to exceed 40 years).3.Trademarks and trade names.A work, phrase, or symbol that distinguishes oridentifies a particular enterprise or product. Although trademarks and tradenames have indefinite lives, their costs should be amortized over a period not toexceed 40 years....
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This note was uploaded on 01/10/2011 for the course FSD 201 taught by Professor Huong during the Spring '10 term at Beacon FL.

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CHAPTER 12 Intangible Assets - 12-1CHAPTER 12Intangible...

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