Professional Documents
Culture Documents
Coby Harmon
University of California, Santa Barbara
Westmont College
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CHAPTER 12
Intangible Assets
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Discuss the characteristics, 4. Identify impairment
valuation, and amortization of procedures and presentation
intangible assets. requirements for intangible
assets.
2. Describe the accounting for
various types of intangible 5. Describe the accounting and
assets. presentation for research and
development and similar
3. Explain the accounting issues for
costs.
recording goodwill.
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PREVIEW OF CHAPTER 12
Intermediate Accounting
IFRS 3rd Edition
Kieso ● Weygandt ● Warfield
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Intangible Asset Issues LEARNING OBJECTIVE 1
Discuss the characteristics,
valuation, and amortization of
intangible assets.
Characteristics
Identifiable.
1. Marketing-related. 4. Contract-related.
2. Customer-related. 5. Technology-related.
3. Artistic-related. 6. Goodwill.
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Intangible Asset Issues
Valuation
Purchased Intangibles
Recorded at cost.
► Legal fees.
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Intangible Asset Issues
ILLUSTRATION 12.1
Research and Development Stages
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Intangible Asset Issues
Amortization of Intangibles
Limited-Life Intangibles
Amortize by systematic charge to expense over useful life.
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Intangible Asset Issues
Amortization of Intangibles
Indefinite-Life Intangibles
No foreseeable limit on time the asset is expected to
provide cash flows.
No amortization.
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Intangible Asset Issues
Amortization of Intangibles
ILLUSTRATION 12.2
Accounting Treatment for Intangibles
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LEARNING OBJECTIVE 2
Types of Intangible Describe the accounting for
various types of intangible
Assets assets.
2. Customer-related. 5. Technology-related.
3. Artistic-related. 6. Goodwill.
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Types of Intangible Assets
No amortization.
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What Do The Numbers Mean? Keep Your Hands Off My Intangible!
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Types of Intangible Assets
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Types of Intangible Assets
Illustration: Green Market AG acquires the customer list of a large
newspaper for €6,000,000 on January 1, 2019. Green Market expects
to benefit from the information evenly over a three-year period. Record
the purchase of the customer list and the amortization of the customer
list for each year on the straight-line basis.
and Mickey
Mouse
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Types of Intangible Assets
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Types of Intangible Assets
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Types of Intangible Assets
Illustration: Harcott Co. incurs $180,000 in legal costs on January 1,
2019, to successfully defend a patent. The patent’s useful life is 10
years, amortized on a straight-line basis. Harcott records the legal
fees and the amortization at the end of 2019 as follows.
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Types of Intangible LEARNING OBJECTIVE 3
Explain the accounting issues
Assets for recording goodwill.
Goodwill
Conceptually, represents the future economic benefits arising from
the other assets acquired in a business combination that are not
individually identified and separately recognized.
excess of cost over the fair value of the identifiable net assets
(assets less liabilities) acquired.
ILLUSTRATION 12.4
Tractorling Statement of Financial Position
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Recording Goodwill
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Recording Goodwill
ILLUSTRATION 12.6
Determination of Goodwill—
Master Valuation Approach
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Recording Goodwill
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Recording Goodwill
Goodwill Write-Off
Goodwill considered to have an indefinite life.
Bargain Purchase
Purchase price less than the fair value of net assets
acquired.
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LEARNING OBJECTIVE 4
Impairment of Identify impairment procedures
and presentation requirements
Intangible Assets for intangible assets.
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Impairment of Limited-Life Intangibles
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Impairment of Limited-Life Intangibles
Fair value less costs to sell means what the asset could be sold
for after deducting costs of disposal. Value-in-use is the present
value of cash flows expected from the future use and eventual
sale of the asset at the end of its useful life.
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Impairment of Limited-Life Intangibles
Illustration: Lerch SE has a patent on how to extract oil from shale
rock, with a carrying value of €5,000,000 at the end of 2018.
Unfortunately, several recent non-shale-oil discoveries adversely
affected the demand for shale-oil technology, indicating that the patent
is impaired. Lerch determines the recoverable amount for the patent,
based on value-in-use (because there is no active market for the
patent). Lerch estimates the patent’s value-in-use at €2,000,000,
based on the discounted expected net future cash flows at its market
rate of interest.
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Impairment of Limited-Life Intangibles
€5,000,000 €2,000,000
Unknown €2,000,000
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Impairment of Limited-Life Intangibles
€5,000,000 €2,000,000
ILLUSTRATION 12.8
Post-Impairment Carrying Value of Patent
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Impairment of Limited-Life Intangibles
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Impairment of Intangible Assets
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Impairment of Indefinite-Life Intangibles
ILLUSTRATION 12.9
Computation of Loss on Impairment of Broadcast License
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Impairment of Intangible Assets
Impairment of Goodwill
Companies must test goodwill at least annually.
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Impairment of Goodwill
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Impairment of Goodwill
Kohlbuy determines the recoverable amount for the Pritt Division to
be €2,800,000, based on a value-in-use estimate.
€2,400,000 €2,800,000
No
Impairment
Unknown €2,800,000
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Impairment of Goodwill
Assume that the recoverable amount for the Pritt Division is
€1,900,000 instead of €2,800,000.
€2,400,000 €1,900,000
Unknown €1,900,000
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5
Impairment of Goodwill
Assume that the recoverable amount for the Pritt Division is
€1,900,000 instead of €2,800,000.
€2,400,000 €1,900,000
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Presentation of Intangible Assets
Income Statement
Companies should report
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Presentation of Intangible Assets
The reporting of intangible assets is similar to the reporting of
property, plant, and equipment.
ILLUSTRATION 12.12
Nestlé’s Intangible Asset Disclosures Unknown $1,900,000
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5
LEARNING OBJECTIVE 5
Research and Describe the accounting and
presentation for research and
Development Costs development and similar costs.
product, formula,
process, composition, or
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Research and Development Costs
ILLUSTRATION 12.13
R&D Outlays, as a Percentage of Sales
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Research and Development Costs
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Research and Development Costs
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Research and Development Costs
Personnel.
Purchased intangibles.
Contract Services.
Indirect Costs.
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Accounting for R & D Activities
Illustration 12.15 Sample R&D Expenditures and Their Accounting
Treatment.
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Accounting for R & D Activities
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Accounting for R & D Activities
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Accounting for R & D Activities
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Research and Development Costs
Advertising costs.
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Research and Development Costs
E12.17: Compute the amount to be reported as research and
development expense.
$330,000 / 5 = $66,000
R&D
Cost of equipment acquired that will have alternative Expense
uses in future R&D projects over the next 5 years
(uses straight-line depreciation) $330,000 $66,000
$403,000
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Presentation of R&D Costs
ILLUSTRATION 12.16
R&D Reporting
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