For internally developed intangibles none of the research and development costs

For internally developed intangibles none of the

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obtain a patent on its own. For internally developed intangibles, none of the research and development costs incurred in developing the intangible asset are included in reported cost. Instead, research and development costs are expensed as incurred. Pfizer , one of the world’s largest pharmaceutical companies, spent $7.7 billion on researching and developing new medicines, vaccines, medical devices, and other health care products in 2015. These costs may help to generate future profits, but none of them were reported as an asset.
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Another common type of intangible asset is goodwill . Goodwill isn’t associated with any specific identifiable right, but instead arises when one company acquires another company. The amount reported for goodwill equals the acquisition price above the fair value of the identifiable net assets acquired. We’ll discuss goodwill and other intangible assets in more detail in Chapter 10 . Illustration 3–6 shows the long-term asset section of Nike ’s balance sheets, including its disclosure of goodwill and identifiable intangible assets. Other Long-Term Assets. This category of long-term assets (reported by most companies) represents a catch- all classification of long-term assets that were not reported separately in one of the other long-term classifications . This amount most often includes long-term prepaid expenses, called deferred charges . For instance, Nike includes promotional expenditures related to long-term endorsement contracts and long-term advertising in this category. Nike also includes deferred charges related to income taxes. This category might also include any long-term investments that are not material in amount and that were not reported separately in the long-term investments category discussed earlier. In the disclosure notes to its financial statements, Nike revealed that it did have a small amount of long- term investments as well as long-term receivables that were combined with deferred charges and reported in this category (instead of being reported separately in a long-term investments category). A key to understanding which category an asset is reported is management intent . For example, in which category will land be reported? It depends on management intent. Management may intend to use land for long-term operating purposes (property, plant, and equipment), hold it for future resale (investment), or sell it in its ordinary course of business (inventory for a real estate company). LIABILITIES Liabilities represent obligations to other entities . The information value of reporting these amounts is enhanced by classifying them as current liabilities and long-term liabilities. CURRENT LIABILITES Current liabilities are those obligations that are expected to be satisfied through the use of current assets or the creation of other current liabilities. So, this classification includes all liabilities that are expected to be satisfied within one year or the operating cycle, whichever is longer . As of May 31, 2015, Nike had current liabilities of $6,334 million that it planned to pay in the next 12 months.
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