Accounting Chapter #12 Intangible Assets - Class Notes/Quiz
Franchises/Licenses (life)
- 0 - indefinite life
Trademarks/Trade names (life)
- 10 years with renewals (indefinite life)
What intangible asset should be shown as a separate item on the balance sheet?
- Goodwill
Purchased Intangible Assets
- Intangible Assets are capitalized and all costs necessary to make the intangible asset ready for its intended use can be capitalized in the same account
What is considered research and development costs?
- Research - planned search or critical investigation aimed at discovery of new knowledge - Development - translation of research findings or other knowledge into a plan or design for a new product or process
Copyrights (life)
- author's life + 70 years
What would be considered research and development?
- construction of prototypes
If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as...
- depreciation deducted as part of research and development costs
When developing computer software to be sold, these costs should be expensed...
- designing - coding - testing
Internally Created Intangible Assets
- expense most costs EXCEPT for legal costs
The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be...
- expensed as incurred
What is the current method of accounting for research and development costs?
- immediate recognition as an expense
Goodwill (life)
- indefinite life
What describes Intangible Assets?
- lack physical existence - provide long-term benefits - classified as long-term assets
The recoverability test is used to determine any impairment loss on which of the following types of intangible assets?
- limited life intangibles
Under current accounting practice, intangible assets are classified as...
- limited-life or indefinite life
Impairment on Intangible Assets
- must test for impairment annually
Bargain Purchase (purchase transaction)
- occurs when the sum of the fair values of identifiable assets acquired less the fair value of liabilities assumed exceeded the cost - excess amount is recorded as a GAIN
Goodwill may be recorded when...
- one company acquires another in a business combination
Amortize Intangible Asset...
- over useful life or legal life - DO NOT AMORTIZE if intangible has INDEFINITE LIFE - use straight line (tax amortization or units of production) - accumulated account is optional
Costs of defending patent from infringement by a competitor should be charged to...
- patents and amortized over the remaining useful life of the patent (add to the amortization base)
Factors that are considered in determining the useful life of an intangible asset...
- provisions for renewal or extension - legal life - expected actions of competitors
Cost of Purchased Intangible Asset
- purchase price - attorney fees - registration fees - successful legal defense costs
Cost of Intangible Asset (purchased)
- purchase price - legal fees - other incidental expenses
What cost incurred internally to create an intangible asset is generally expensed?
- research and development costs are generally expensed (filing costs & legal costs are NOT expensed)
Intangible assets are reported on the balance sheet...
- separately from other assets
Leasehold Improvements
- sometimes shown in PPE
The carrying amount of an intangible is...
- the asset's acquisition cost less the total related amortization recorded to date
Characteristics of Intangible Assets
1. lack of physical existence - they are rights & privileges 2. they are not financial instruments - no claim to $ 3. they are long-term assets and amortized (or NOT)
Patents (life)
20 years
One factor that is not considered in determining the useful life of an intangible asset is...
salvage value
Should intangible assets with indefinite lives be amortized?
NO
