CH9 intangible assets

Copyright

the federal government grants and give the owner the exclusive right to reproduce and sell an artistic or published work.

The amortization period of an intangible asset can exceed 20 years.

true

Amortization is to what depreciation is to and depletion is to

intangibles to plant assets natural resources.

Patent excludes others from:

making use selling etc an invention within bounds of country that granted the patent. limited monopoly.

Intangible assets include

patents, copyrights, trademarks, franchises, goodwill right of company with no physical substance

plant assets and intangible assets difference in cost

plant = cost includes both purchase price of the asset and the costs incurred in designing and constructing intangible=includes only the purchase price..... companies expense any costs incurred in developing an intangible asset.

Goodwill

the value of all favorable attributes that relate to a company that is not attributed to any other specific asset. when a company buys another smaller company. the premium it pays is called GOODWILL.

good will exists even though a company pays a premium over the equity of business it is buying because

to account for economic benefits of brand. company a buys the company b for 80$ million that has 70$ million in equity but when they buy it they are also getting other benefits that are not accounting for equity in the brand.. customers, brand, employees etc.... they both agree the value of the brand is 10$ million then every quarter they access if goodwill is benefiting company and if not they impaire it... they eliminate it and the actual equity of the company can go bad.. so watch out for a company with a lot of goodwill.

Goodwill is recorded only when a business is purchased

true

A right to sell certain products or services or to use certain trademarks or trade names within a designated geographic area.

Franchises

good will has an indefinite life so it is

NOT amortized indefinite (usefulness to business not limited by age)

If goodwill can be identified only with the business as a whole, how can its amount be determined? One could try to put a dollar value on the factors listed above (exceptional management, desirable location, and so on). But, the results would be very subjective, and such subjective valuations would not contribute to the reliability of financial statements.

companies record goodwill only when an entire business is purchased. When the entire business is purchased, goodwill is the excess of cost over the fair value of the net assets (assets less liabilities=equity) acquired.

To record amortization of an intangible asset,

company increases (debits) Amortization Expense and decreases (credits) the specific intangible asset.(cr, patent)

Unlike assets such as investments and plant assets, which can be sold individually in the marketplace, goodwill can be identified only with the business as a

whole.

Amorization

The process of allocating the cost of intangibles is referred The cost of intangible assets with indefinite lives should not be amortized.

If an intangible asset has a finite life, it should be amortized.

true

Research and development (R&D) costs are expensed when incurred, regardless of whether the research and development expenditures result in a successful patent or not. The other choices are true statements.

true

Many patents are subject to litigation by competitors.

Any legal costs an owner incurs in successfully defending a patent in an infringement suit are considered necessary to establish the patent's validity. The owner adds those costs to the Patents account and amortizes them over the remaining life of the patent.

The patent holder amortizes the cost of a patent over its 20-year legal life or its useful life, whichever is shorter.

Companies consider obsolescence and inadequacy in determining useful life. These factors may cause a patent to become economically ineffective before the end of its legal life.

An exclusive right granted by the federal government to reproduce and sell an artistic or published work.

Copyrights

The allocation of the cost of a natural resource in a rational and systematic manner.

Depletion

Intangibles may be evidenced by contracts, licenses, and other documents. They may arise from the following sources:

Government grants, such as patents, copyrights, licenses, trademarks, and trade names. Acquisition of another business in which the purchase price includes a payment for goodwill. Private monopolistic arrangements arising from contractual agreements, such as franchises and leases.

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.

Intangible assets

Costs incurred by a company that often lead to patents or new products. These costs must be expensed as incurred.

Research and development costs

patents and copy rights

are amortized CR= amortized over estimated useful life CR= 70 years beyond authors death

Companies record intangible assets

at cost categorized as having either a limited life or an indefinite life. If an intangible has a limited life, the company allocates its cost over the asset's useful life using a process similar to depreciation.

for goodwill... In recording the purchase of a business, the company

debits (increases) the identifiable acquired assets at their fair values, credits liabilities at their fair values, credits cash for the purchase price, and records the difference as the cost of goodwill.

patent

exclusive right issued by the U.S. Patent Office that enables the recipient to manufacture, sell, or otherwise control an invention for a period of 20 years from the date of the grant.

trade name= trademark= francshise=

iPod Nike swoosh Mcdonalds

The useful life of a copyright generally is

significantly shorter than its legal life. Therefore, copyrights usually are amortized over a relatively short period of time.

intangible assets are amortized on

straight line basis For example, the legal life of a patent is 20 years. Companies amortize the cost of a patent over its 20-year life or its useful life, whichever is shorter

Goodwill is not amortized because

t is considered to have an indefinite life. However, goodwill must be written down if a company determines that its value has been permanently impaired.

trademarks are reported on

the balance sheet under the intangible assets

The initial cost of a patent is

the cash or cash equivalent price paid to acquire the patent.

The cost of a copyright is

the cost of acquiring and successfully defending it.

copy rights last for

the life of creator plus 70 years