10/11/2023

INSTRUCTOR
INFORMATION
Full name: DANG THI THUY HANG, MB, Ph.D.
INTANGIBLE NON- Address: Room 1114, 11th Floor, Building A1, NEU Campus
CURRENT
6.53
ASSETS Phone number: +84 915 166 150
Email: hangdt@neu.edu.vn
HANG DANG, 2023
Faculty/Institute: School of Accounting and Auditing
Department: Financial Accounting

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MAIN TOPICS

CHARACTERISTICS, VALUATION, AND

AMORTIZATION OF INTANGIBLE ASSETS
INTANGIBLE GOODWILL R & D COSTS
ASSETS (IFRS 3) (IAS 38)
(IAS 38)

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INTANGIBLE ASSET ISSUES

Definition
INTANGIBLE ASSET ISSUES
An identifiable non-monetary asset Identifiable
without physical substance (IAS38).
Characteristics An intangible asset must either be
1. Identifiable.  separable from the company (can be sold or transferred), or
 it arises from a contractual or legal right from which economic benefits
2. Lack physical existence. will flow to the company.
3. Non-monetary assets.
Normally classified as long-term asset.

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INTANGIBLE ASSET ISSUES MARKETING-RELATED INTANGIBLE ASSETS

TRADEMARKS
Recognition criteria (IAS 38)
 TRADE NAMES
 NEWSPAPER MASTHEADS
 It is probable that future economic benefits associated with the intangible  INTERNET DOMAIN NAMES
asset will flow to the entity.  NON-COMPETITION AGREEMENTS
 The cost of the intangible asset to the entity can be measured reliably.
1. Active market: Cost = Fair value → Cost of the asset is capitalized if it is purchased.
2. Non-active market: Cost = PV of cash flows generated in the future → Cost of the asset is not capitalized if it is generated internally.
→ Amortization during the limited useful life.

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CUSTOMER-RELATED INTANGIBLE ASSETS ARTISTIC-RELATED INTANGIBLE ASSETS

 CUSTOMER LISTS  PLAYS
 ORDER OR PRODUCTION BACKLOGS
 LITERARY WORKS
 CONTRACTUAL AND NON-CONTRACTUAL CUSTOMER
RELATIONSHIPS  MUSICAL WORKS
 PICTURES, PHOTOGRAPHS
→ Cost of the asset is capitalized if it is purchased.  VIDEO AND AUDIOVISUAL MATERIAL
→ Amortization during the useful life.
→ Cost of the asset is capitalized if it is purchased (including
copyright).
→ Amortization during the useful life.

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CONTRACT-RELATED INTANGIBLE ASSETS TECHNOLOGY-RELATED INTANGIBLE ASSETS

 FRANCHISE AND LICENSING AGREEMENTS
 CONSTRUCTION PERMITS  PATENTED TECHNOLOGY
 BROADCAST RIGHTS  TRADE SECRETS
SERVICE OR SUPPLY CONTRACTS
→ Cost of the asset is capitalized if it is purchased.
→ Cost of the asset is capitalized if it is purchased. → Amortization during the useful life or the legal life,
whichever is shorter.
→ Amortization during the useful life.

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GOODWILL INTANGIBLE ASSET ISSUES

Valuation
GOODWILL: an entity’s value over and above its recorded value
in the financial statements (reputation of an entity). Purchased Intangibles
• Recorded at cost
→ Positive goodwill is a special intangible asset (business • Includes all costs necessary to make the intangible asset
combination). ready for its intended use
→ Internally generated goodwill: not intangible asset. • Typical costs include:
→ Inde inite life: no amortization.  Purchase price
 Legal fees
 Other incidental expenses
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INTANGIBLE ASSET ISSUES INTANGIBLE ASSET ISSUES

Valuation Amortization of Intangibles
Internally Created Intangibles Limited-Life Intangibles (finite life)
• Recorded at cost • Amortize to expense over useful life
• Generally expensed • Credit asset account or accumulated amortization
• Useful life should reflect the periods over which the asset will
• Only capitalize direct costs incurred in developing contribute to cash flows
intangible, such as legal costs
• Amortization should be cost less residual value
International Perspective • Companies should evaluate the limited-life intangibles for
IFRS requires capitalization of some development costs. impairment

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INTANGIBLE ASSET ISSUES INTANGIBLE ASSET ISSUES

Amortization of Intangibles Amortization of Intangibles
Indefinite-Life Intangibles Manner Acquired
• No foreseeable limit on time the asset is expected to provide
cash flows Type of Intangible Purchased Internally Created Amortization Impairment Test
Limited-life Capitalize Expense* Over useful life Compare
• Must test indefinite-life intangibles for impairment at least intangibles recoverable
annually amount to
• No amortization carrying value
Indefinite-life Capitalize Expense* Do not amortize Compare
intangibles recoverable
amount to
carrying value
*Except for direct costs, such as legal costs.
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ILLUSTRATION
Green Market Inc. acquires the customer list of a large newspaper for $6,000,000 on
January 1, 2020. Green Market expects to benefit from the information evenly over
a three-year period. Record the purchase of the customer list and the amortization

ACCOUNTING FOR of the customer list at the end of each year.

INTANGIBLE ASSETS Jan. 1, 2017 Customer List

Cash
6,000,000
6,000,000

Dec. 31,
2017 Amortization Expense 2,000,000
2018 Customer List * 2,000,000
2019

* or Accumulated Amortization

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ILLUSTRATION
Harcott Co. incurs $180,000 in legal costs on January 1, 2020, to successfully defend
a patent. The patent’s useful life is 12 years, amortized on a straight-line basis.
Harcott records the legal fees and the amortization at the end of 2020 as follows.

ACCOUNTING ISSUES FOR

Jan. 1
RECORDING GOODWILL
Dec. 31

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Goodwill ILLUSTRATION
Represents the future economic benefits arising from the other assets Multi-Diversified, Inc. decides that it needs a parts division to supplement its existing
acquired in a business combination that are not individually identified tractor distributorship. The president of Multi-Diversified is interested in buying
and separately recognized. Tractorling Company. The illustration presents the statement of financial position of
Tractorling Company.
Only recorded when an entire business is purchased.
Goodwill is the ...
excess of cost of the purchase over the FMV of the identifiable net
assets (assets less liabilities) purchased.
Internally created goodwill should not be capitalized.

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RECORDING GOODWILL RECORDING GOODWILL

Multi-Diversified investigates Tractorling’s underlying Tractorling Company decides to accept Multi-Diversified’s offer
assets to determine their fair values. of $400,000. What is the value of the goodwill, if any?
Fair Values
Cash $ 25,000
Accounts receivable 35,000
Inventory 122,000
Property, plant, and equipment, net 205,000
Patents 18,000
Liabilities (55,000)
Fair value of net assets

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RECORDING GOODWILL RECORDING GOODWILL

Global Corporation purchased the net assets of Local Company for $300,000 on
Multi-Diversified records this transaction as follows. December 31, 2020. The balance sheet of Local Company just prior to acquisition is:
Assets Cost FMV
Cash Cash $ 15,000 $ 15,000
Accounts Receivables Receivables 10,000 10,000
Inventories 50,000 70,000
Inventory Equipment 80,000 130,000
Property, Plant and Equipment Total $155,000 $225,000

Patents Liabilities and Equities

Accounts payable $ 25,000 $25,000 FMV of
Goodwill Common stock 100,000 Net Assets
Retained earnings 30,000 =
Liabilities
Total $155,000
Cash

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RECORDING GOODWILL GOODWILL

Global Corporation purchased the net assets of Local Company for $300,000 on Goodwill Write-Off
December 31, 2020. The value assigned to goodwill is determined as follows:
• Goodwill considered to have an indefinite life
• Should not be amortized
• Only adjust carrying value when goodwill is impaired
Bargain Purchase
• Purchase price less than the fair value of net assets
acquired
• Amount is recorded as a gain by the purchaser

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PRESENTATION OF INTANGIBLE ASSETS

Statement of Financial Position
• Intangible assets shown as a separate item
PRESENTATION REQUIREMENTS • Reporting is similar to reporting of property, plant, and
equipment
FOR INTANGIBLE ASSETS • Contra accounts are not normally shown for intangibles
• Companies should report as a separate item all intangible assets
other than goodwill

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PRESENTATION OF INTANGIBLE ASSETS

Statement of Profit or Loss
• Report amortization expense and impairment losses in ACCOUNTING AND PRESENTATION FOR
continuing operations RESEARCH AND DEVELOPMENT AND
• Goodwill impairment losses should be presented as a separate SIMILAR COSTS
line item in the continuing operations section, unless goodwill
impairment is associated with a discontinued operation

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RESEARCH AND DEVELOPMENT COSTS RESEARCH AND DEVELOPMENT COSTS

Research and development (R&D) costs are not in themselves Identifying R&D Activities
intangible assets.
Frequently results in something that a company patents or copyrights Research Activities Examples
such as: Planned search or critical investigation Laboratory research aimed at discovery of
• new product, aimed at discovery of new knowledge. new knowledge; searching for applications
Companies must of new research findings.
• process, expense all research
• idea, costs when incurred.
Development Activities Examples
• formula, Development costs
• composition, or may be capitalized. Translation of research findings or other Conceptual formulation and design of
• literary work. knowledge into a plan or design for a new possible product or process alternatives;
product or process or for a significant construction of prototypes and operation of
improvement to an existing product or pilot plants.
process whether intended for sale or use.

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RESEARCH AND DEVELOPMENT COSTS RESEARCH AND DEVELOPMENT COSTS

Accounting for R&D Activities Costs Similar to R&D Costs
Costs Associated with R&D Activities: 1. Start-up costs for a new operation.
• Materials, Equipment, and Facilities 2. Initial operating losses.
• Personnel 3. Advertising costs.
• Purchased Intangibles 4. Computer software costs.
• Contract Services
• Indirect Costs

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THANK YOU
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