CH10-Intangible Assets
What is asset turnover ratio? What is the formula?
measures how efficiently a business uses its average total assets to generate sales. =Net sales/average total assets. Example: A company's ratio is 1.18. This means that a company produces 1.18 million of sales revenue for each 1.00 of assets invested.
Examples of intangibles:
patents, copyrights, trademarks.
What is impairment?
A permanent decline in asset value. Occurs when the fair value of an asset is less than the book value.
How are purchased intangibles expensed through?
AMORTIZATION
How to calculate amortization expense?
Amortization expense=(Cost-residual value)/useful life
What are intangible assets?
An asset with no physical form that is valuable because of it's special rights it carries.
What is a patent?
An intangible asset that is a federal government grant conveying an exclusive 20 year right to produce and sell an invention.
Why is there no Accumulated Amortization?
Because patents don't have a residual value at the end of its useful life, so the assets removes itself from the books through the process of amortization.
How to record the patent in the books?
Cost Less: year amortization =Net (book value)
How to record amortization expense for the year?
DEBIT amort. expense CREDIT patent
How to record an acquired company?
DEBIT assets DEBIT goodwill CREDIT liabilities CREDIT cash
How to record a purchase of a patent?
DEBIT patent CREDIT cash
What is amortization?
Process by which businesses spread the allocation of an intangible asset's cost over its useful life.
How to calculate Goodwill?
Purchase price to acquire company -Net (Market value Asset - Liabilities) = Goodwill
How does a company record impairment?
Record a loss in the period
Copyrights, franchises, license are amortized like patents.
TRUE
What is goodwill?
The excess of the cost of an acquired company over the sum of the market values of its net assets.
Goodwill is the value paid above the net worth of its assets and liabilities.
True
Only intangibles with a definite life are...
amortized.
Intangible asset with an indefinite life are tested for...
impairment annually.
