136b_chapter12

136b_chapter12 - A LITTLE BACKGROUND INTANGIBLE ASSETS...

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10:24 12-1 Bob Anderson, UCSB 2004 INTANGIBLE ASSETS Chapter 12 12-2 Bob Anderson, 2004 A LITTLE BACKGROUND Before “corporate scandal” was the number one focus, intangible asset valuation, and amortization periods were among the most scrutinized aspects of financial reporting- AND STILL ARE VERY HIGH PRIORITIES Intangible assets represent nearly 50% of the balance sheet these days. Prior to FAS 142, goodwill was amortized. Now it, and intangibles with “indefinite useful lives” are no longer amortized. Can you say “ticking time bomb”? Also, how about our old friend the matching principle- where did it go? NOT amortizing goodwill is one of the very first examples of “Convergence”. 12-3 Bob Anderson, 2004 Intangibles Defined Assets (not including financial assets) that lack physical substance. 12-4 Bob Anderson, 2004 Purchased Intangibles -- At cost, which includes . .. all expenditures necessary to make asset ready for its intended use. Internally-Created Intangibles -- Generally expensed as incurred. Amortization -- Limited useful life – AMORTIZE, over estimated life Test for impairment under same rules as fixed assets. . Remember? IF “event or change in circumstance” then do the undiscounted cash flow analysis. Indefinite useful life – No AMORTIZATION, BUT annual impairment testing required… no “if”- ALWAYS ONCE/ YEAR Valuation
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10:24 12-5 Bob Anderson, 2004 Limited-Life Intangibles -- The useful life should reflect the periods over which these assets will contribute to cash flows (MATCHING) Indefinite-Life Intangibles— There is no foreseeable limit on the period of time over which the intangible asset is expected to provide cash flows. Test for impairment at least annually- FIRST compare estimated fair value of business to NBV, if FV>NBV, done, if not… Write Goodwill down until FV of the business= its NBV IMPAIRMENT TESTING DISCUSSED MORE LATER Amortization 12-6 Bob Anderson, 2004 Trademark or Trade Name- Registration with the U.S. Patent and Trademark Office provides legal protection for an indefinite number of renewals of periods of 10 years each. Amortizable? NO- Indefinite life- test for impairment annually (more on impairment testing later) Direct costs capitalizable (i.e attorney fees) Customer Lists Capitalizable if you bought it, if internally generated, nope. Types of Intangibles 12-7 Bob Anderson, 2004 Types of Intangibles- Continued Copyright Granted for the life of the creator plus 70 years. Franchise, License, and Permits Patent right to use, manufacture, and sell a product or process for a period of 20 years. Goodwill- we will discuss at length! 12-8 Bob Anderson, 2004 NOT AN INTANGIBLE Costs to internally develop an intangible Organizational costs (SOP 98-5) Unless ACQUIRED, these are NOT capitalized as intangibles (expense as incur) Customer mailing lists; Brand name; Just about anything which is not tangible and not acquired
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10:24 12-9 Bob Anderson, 2004 1. Alatorre purchased a patent from Vania Co. for $1,000,000 on January 1, 2005.
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This note was uploaded on 12/25/2011 for the course ECON 136B taught by Professor Anderson during the Fall '08 term at UCSB.

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136b_chapter12 - A LITTLE BACKGROUND INTANGIBLE ASSETS...

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