ACC 321- Exam #3 Book Notes

ACC 321- Exam #3 Book Notes - ACC321Chapter12BookNotes...

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ACC 321- Chapter 12 Book Notes 11/04/2011 11:33:00 Ch. 12 Intangible Assets Intangible Asset Issues Characteristics o They lack physical substance, they derive their value from the rights  and privileges granted to the company for using them o They are not financial instruments o They are long-term assets Valuation o Purchased Intangibles- companies record at cost intangibles  purchased from another party (acquisition costs plus expenditures If you acquire intangibles in exchange for stock, the cost of the  intangible is the fair value of the consideration given or the fair  value of the intangible received, whichever is more clearly  evident  o Internally Created Intangibles Costs incurred internally to create intangibles are generally  expensed because they bear no relationship to their real value.  Ex) Research and Development Companies capitalize only direct costs  incurred in developing  intangibles (legal costs) then expense the rest Amortization of Intangibles o Amortization- the allocation of the cost of intangible assets in a  systematic way o Limited-Life Intangibles (copyrights) Companies amortize their limited-life intangibles by systematic  charges to expense over their useful life The amount of amortization expense for a limited-life intangible  asset should reflect the pattern in which the company consumes  or uses up the asset When a company amortizes these licenses, it should  show the charges as expenses. It should credit either the  asset accounts or separate accumulated amortization  accounts
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The amount of an intangible asset to be amortized should be its  cost less residual value Impairment= if the carrying amount of the intangible is not  recoverable and its carrying amount exceeds fair value o Indefinite-Life Intangibles There is no foreseeable limit on the period of time over which  the intangible asset is expected to provide cash flows A company does not amortize an intangible asset with an  indefinite life Need to test for Impairment annually (only fair value test is  performed for indefinite life intangibles QuickTimeª and a decompressor are needed to see this picture. Types of Intangible Assets Market-Related o Trademarks= a word phrase, or symbol that distinguishes or identifies  a particular company or product (Kleenex, Buick, Pepsi o Registration with the US patent provides legal protection for an  indefinite number of renewals for periods of 10 years
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o If a company buys a trademark or trade name, it capitalizes the  cost at the purchase price. If a company develops a trademark or 
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ACC 321- Exam #3 Book Notes - ACC321Chapter12BookNotes...

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