25 Intangible_Assets - IntangibleAssets IntangibleAssets

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Intangible Assets Intangible Assets Accountancy 301 Spring 2011 Flora Zhou 25 I’ve searched everywhere! I just don’t see any!
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Investments in intangible vs.  Investments in intangible vs.  tangible assets tangible assets
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Today Today ’s agenda ’s agenda • Intangible assets – What are intangible assets? – Classification • Initial valuation of intangible assets • Amortization and impairment of intangible  assets • Problems with current accounting rules on  intangibles
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Intangible assets Intangible assets • Characteristics – Lack physical substance other than financial assets – Long-lived – Uncertainty about future benefits • value only to given enterprise, fewer alternative uses • indeterminate lives • value fluctuates - based on competitive advantage  – 10% of patents account for 81-93% of total patent value – Earnings volatility (risk) is three times greater for R&D than  physical investments • Examples of intangible assets?
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Intangible assets Intangible assets Intangibles are divided into:  – Specifically identifiable intangibles .  Intangibles are  identifiable if their costs can be traced to a source  or object, or they can be sold without selling the  whole business.  • E.g. Patens, Trademarks, Franchises, copyrights – Goodwill which is a non-identifiable intangible .   Goodwill does not arise from a particular source but  from the general reputation, etc., of the firm. • Intangibles can also be divide into: – Internally generated – Externally purchased
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Accounting for intangible assets Accounting for intangible assets • Externally purchased intangibles – Record at current cash equivalent cost,  including purchase price, legal fees, and filing  fees (similar to PPE). • Internally developed intangibles – Generally expensed as incurred – Exception includes R&D performed for others  and computer software development. At point of initial recognition
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Research and Development (R&D) Research and Development (R&D) Research – Planned search or critical investigation aimed at  discovery of new knowledge . . . Development – The translation of research findings or other  knowledge into a plan or design . . . • R&D costs are not intangible assets, but  they frequently result in intangible assets.
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R&D accounting rules R&D accounting rules SFAS No. 2 SFAS No. 2 General R&D Standard – SFAS No. 2 requires immediate expense of all  internally conducted R&D costs and externally  contracted R&D costs as they are incurred – Consistent with Matching Principle? Does R&D meet  the definition of assets? Why expense R&D?  Partial exception : Software development costs 
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25 Intangible_Assets - IntangibleAssets IntangibleAssets

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