Ch.12 Intangible Assets

Impairment of Limited-Life Intangibles

1. If the sum of the expected future net cash flows (undiscounted) is LESS THAN the carrying amount of the asset, an impairment has occurred (recoverability test). 2. The impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset (fair value test).

6 Major categories of intangible assets

1. Marketing-related. 2. Customer-related. 3. Artistic-related. 4. Contract-related. 5. Technology-related. 6. Goodwill.

Amortization of limited-life intangible assets should not be affected by expected residual values. True False

False

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent. True False

False

The rules used to account for impairments of limited-life intangible assets are different from the rules used to account for impairments of plant and equipment. False True

False

Excess of cost over fair value of identifiable net assets of acquired business is another TERM for....

Goodwill

Limited-life intangibles are amortized by systematic charges to expense over their useful lives. False True

True

Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs. False True

True

Impairment of Goodwill

Two Step Process: - Step 1: If fair value (Company as a whole) is LESS THAN the carrying amount of the net assets (including goodwill), then perform a second step to determine possible impairment. - Step 2: Determine the fair value of the goodwill (implied value of goodwill) and compare to carrying amount.

The cost of an intangible asset includes all of the following EXCEPT - purchase price. - all of these choices are included. - legal fees. - other incidental expenses.

all of these choices are included.

When we capitalize something, it means we

are going to carry it on our balance sheet as a asset - fixed asset

Costs incurred internally to create intangibles are - capitalized if they have an indefinite life. - capitalized. - expensed as incurred. - expensed only if they have a limited life.

expensed as incurred.

Under current accounting practice, intangible assets are classified as - amortizable or unamortizable. - legally restricted or goodwill-type. - limited-life or indefinite-life. - specifically identifiable or goodwill-type.

limited-life or indefinite-life.

One factor that is not considered in determining the useful life of an intangible asset is - legal life. - salvage value. - provisions for renewal or extension. - expected actions of competitors.

salvage value.

purchased intangibles

- Recorded @ Cost - Includes all costs necessary to make the intangible asset ready for its intended use • Typical costs include: - Purchase price - Legal fees - Other incidental expenses

Impairment of Indefinite-Life Intangibles Other than Goodwill

- Should be tested for impairment at least annually - Impairment test is a fair value test - If fair value of asset is LESS THAN carrying amount, an impairment loss is recognized for the difference - Recoverability test is not used

Internally Created Intangibles

- recorded at cost - generally expensed - only capitalize direct costs incurred in developing the intangible, such as legal costs

Which of the following characteristics do intangible assets possess? - Claim to a specific amount of cash in the future. - Long-lived. - Physical existence. - Held for resale.

Long-lived.

Recovery of impairment is recognized for all the following except: a. patent held for sale. b. patent held for use. c. trademark. d. goodwill.

goodwill.

Factors considered in determining an intangible asset's useful life include all of the following EXCEPT - any provisions for renewal or extension of the asset's legal life. - any legal or contractual provisions that may limit the useful life. - the expected use of the asset. - the amortization method used.

the amortization method used.

Costs associated with R&D Activities

• Materials, Equipment, and Facilities • Personnel • Purchased Intangibles • Contract Services • Indirect Costs

Which of the following intangible assets should not be amortized? - Perpetual franchises. - Copyrights. - Customer lists. - All of these intangible assets should be amortized.

Perpetual franchises.

Goodwill

Represents the future economic benefits arising from the other assets acquired in a business combination that are not individually identified and separately recognized. - ONLY RECORDED WHEN AN ENTIRE BUSINESS IS PURCHASED

Which of the following costs incurred internally to create an intangible asset is generally expensed? - All of these answer choices are correct. - Filing costs. - Research and development costs. - Legal costs.

Research and development costs.

Internally generated intangible assets are initially recorded at fair value. True False

False

When a patent is amortized, the credit is usually made to - an expense account. - the Patents account. - a Deferred Credit account. - an Accumulated Amortization account.

the Patents account.

Limited-Life Intangibles

- Amortize to expense - Credit asset account or accumulated amortization - Companies should evaluate the limited-life intangibles for impairment

Indefinite-Life Intangibles

- NO foreseeable limit on time the asset is expected to provide cash flows - NO amortization - Must test indefinite-life intangibles for impairment at least annually

Costs similar to R&D costs

- Start-up costs for a new operation. - Initial operating losses. - Advertising costs. - Computer software costs.

Reaserch and Development costs

Companies MUST EXPENSE all research and development costs when INCURRED.

Which of the following types of intangible assets result from interactions and relationships with outside parties? - Artistic-related intangible assets - Customer-related intangible assets - Marketing-related intangible assets - Contract-related intangible assets

Customer-related intangible assets

After an impairment loss is recorded for a limited-life intangible asset, the carrying amount becomes the basis for the impaired asset and is used to calculate amortization in future periods. True False

True

If a new patent is acquired through modification of an existing patent, the remaining book value of the original patent may be amortized over the life of the new patent. True False

True

If the fair value of an unlimited life intangible other than goodwill is less than its book value, an impairment loss must be recognized. False True

True

A loss on impairment of an intangible asset under IFRS is the asset's: a. carrying amount less the expected future net cash flows. b. carrying amount less its recoverable amount. c. recoverable amount less the expected future net cash flows. d. book value less its fair value.

carrying amount less its recoverable amount.

The right granted to all authors, painters, musicians, sculptors, and other artists for their creations and expressions is termed as a - copyright - franchise - trademark - patent

copyright

Research and development costs are: a. expensed under GAAP. b. expensed under IFRS. c. expensed under both GAAP and IFRS. d. None of the above.

expensed under GAAP.