CLASS QUESTIONS 12A

CLASS QUESTIONS 12A - life appears to be indefinite (such...

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CLASS QUESTIONS (12A) (1) Intangibles purchased from another entity are capitalized (recorded) at cost, which is their fair value at the date of acquisition. With respect to intangible assets that are developed internally, what costs, if any, are capitalized? Only direct costs should be capitalized. With respect to internal development of a trademark, would it be appropriate to capitalize the trademark registration costs? It would be appropriate because legal costs also need to be capitalized. (2) Why is the cost of an intangible asset often amortized (expensed) over a shorter period than its legal life? Copmanies amortize their limited-life intangibles 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. Over what specific period should the cost of an intangible asset be amortized if its useful
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Unformatted text preview: life appears to be indefinite (such as in the case of a valuable trade name that is purchased from another entity)? A company does not amortize an intangible asset (3) What is a franchise? Over what period should the cost of a franchise be amortized? It is a contractual agreement under which the franchisor grants the franchisee the right to sell certain products or services, to use certain trademarks or trade names, or to perform certain functions usually within a designated geographical area. A company should amortize the cost of a franchise or license with a limited life as operating expense over the life of the franchise. (4) Under what circumstances is goodwill recognized (recorded) as an asset? What are a couple of reasons why internally developed goodwill is not recognized?...
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This note was uploaded on 09/02/2011 for the course MGT 3305 taught by Professor Reed during the Spring '08 term at Baylor.

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CLASS QUESTIONS 12A - life appears to be indefinite (such...

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