Goodwill and Intangibles

Intangible assets, Definite Life

capitalize external costs, amortize over useful life, no residual value, Straight line method, impairment is BV minus FV if BV is greater than recoverable value.

Patents, costs to capitalize

capitalize legal costs to defend, and application costs. Under GAAP, R&D is expensed.

Goodwill calculation

1) market rate of return x net identifiable assets = expected earnings. 2) Average annual income - expected earnings = excess earnings. 3) excess earnings x PV given = Goodwill

IFRS differences for Intangible assets

1) revaluation is allowed of intangibles if in an active market. 2) Reversal of impairment is allowed. 3) Cash generating unit - more likely to incur impairment than under GAAP. 3) One step test - quantitative assessment for carrying value compared to recoverable amount.

Quantitative assessment

2nd step to determine potential impairment loss. 1) MV - BV = implied goodwill. 2) Purchase price - FMV = Goodwill. 3) Goodwill - implied goodwill = goodwill impairment loss.

Organizational costs

Expensed in year incurred, along with startup costs.

Qualitative assessment

GAAP pre-step to determine if impairment is likely

Goodwill

Goodwill has an indefinite life, and is not amortized but is tested for impairment.

IFRS recoverable amount

Greater of FV less cost to sell or value in use.

What amount of revenue from proceeds received from life insurance is reported when cash-surrender value has been recorded?

Proceeds received less cash surrender value. Remainder of proceeds from death of insured is revenue, even if it isn't taxable.

Life insurance, increase in cash surrender value

Reported as a decrease in annual insurance expense. Cash surrender value = premiums paid less insurance expense. Definite increase in assets; Earnings.

Intangible assets, indefinite life

Test for impairment annually. Capitalize external cost, no amortization, impairment loss is BV minus FV, if BV is greater than fair value. Examples are renewable licenses.

copyrights, life

have definite life, shorter of legal or useful life. Useful life can be the time period of positive cash flow

Trademarks, costs capitalized

includes applicable taxes and costs to register, but doesn't include costs to develop the asset since it was developed on purchase. Previous owner's unamoritzed cost is irrelevant. Amortization is cost divided by useful life.