INTANGIBLE ASSETS

Characteristics

 Identifiable
o Separable from company
o Arise from legal/contractual rights
 Lack physical existence
o Rights and privileges
 Not monetary assets
 Non-current assets

Valuation

 Purchased intangibles
o At cost
 Acquisition costs
 Expenditures necessary for intended use
o In exchange of shares or other assets
 FV of considerations given
 FV of intangibles received
o Basket purchase (combination of tangible and intangible)
 Allocate cost in basis of FV
 Business combination
o FV at acquisition date
 Government grant
o FV or nominal amount
 Internally created intangibles
o Patents
o Computer software
o Copyrights
o Trademarks
 Research and development (R&D) costs
 Research phase
o Expensed
 Development phase
o Expensed
o Capitalized if economic viability is met

Amortization of intangibles

 Limited-life intangibles
o Amortized to shorter of its useful life and legal life
 Cost – Residual value
 Reflect pattern in the use of asset
 Straight-line method
 o Charged to expensed
 Cr Intangible asset/Accumulated amortization
o Tested to impairment annually
 Carrying amount > Recoverable cost*
*Higher of FV less cost to sell and Value in use
 Indefinite-life intangibles
o Not amortized
o Tested for impairment annually

Types of intangibles

 Marketing-related intangible assets

o Trademarks/tradenames
 Indefinite life
 Not amortized
o Newspaper mastheads
 Purchased
 Amortized over useful life
 Internally generated
 Expensed
o Internet domain names
 Planning
 Expensed
 Application and infrastructure
 Intangible asset if meets conditions
 Graphical design
 Intangible asset if meets conditions
 Content development
 Capitalized as intangible asset if
o Used internally
o Used externally (can place order)
 If for promotion only
 Expensed
 Operating
 Expensed
o Non-competition agreements
 Customer-related intangible assets
o Customer lists, order or production backlogs
 Internally generated
 Expensed
o Contractual and non-contractual consumer relationships
 Artistic-related intangible assets
o Ownership rights to plays
o Literary works
 o Musical works
o Pictures
o Photographs
o Video
o Audiovisual materials
 Protected by copyrights
 Granted for life of creator + 50 years
 Contract-related intangible assets
o Franchise and licensing agreements
o Construction permits
o Broadcast rights
o Service/supply contracts
 Technology-related intangible assets
o Patented technology and trade secrets
 Product patents
 Process patents
 20 years

Goodwill

 Cost of purchase – FV of identifiable net assets purchased*

*assets – liabilities
 Plug/gap filler/master valuation account
 Recording
o Internally created
 Not capitalized in the accounts
o Purchased
 Recorded when entire business is purchased
 Excess of cost over FV of identifiable net assets acquired
 Write off
 Bargain purchase
o Purchaser pays less than the FV of identifiable net assets
 Recorded as gain by purchaser

Impairment of intangible assets

 Impairment of limited-life intangibles

o Carrying value – Recoverable amount = Impairment
 Dr Impairment loss
Cr Intangible asset/Accumulated impairment losses
 Reversal of impairment loss
o Dr Intangible asset/Accumulated impairment losses
Cr Recovery of impairment loss
 Impairment of indefinite-life intangibles other than goodwill
o Impairment test annually
 o Carrying value – Recoverable amount = Impairment
 Impairment of goodwill
o Impairment test annually
 Based on cash-generating units to which goodwill is assigned
 Dr Loss on impairment
Cr Goodwill
o Impairment reversal not permitted

Research and development costs

 Expensed as incurred
 Accounting
o Materials, equipment, facilities
 Expense entire cost
 If have alternative future uses
 Carry to inventory
o Capitalize and depreciate as used as R&D/allocate as consumed
o Personnel
 Salaries
 Wages
 Other related costs
o Purchased intangibles
 Measured and recognized at FV
 After initial recognition
 Account for according to its nature
o Contract services
o Indirect costs
 Costs similar to R&D costs
o Start-up costs for new operation
 Expense as incurred
o Initial operating losses
 Not capitalized
 Advertising costs
o Expense as incurred