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Chapter

9
INTANGIBLE ASSETS

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Major Categories of Plant Assets

T a ngible Plant Intangible Na tura l

Asse ts Assets Resource s

L on g -te rm N o n c u rre n t a s s ets S ites a c q u ired fo r

as s e ts h a vin g w ith n o p h ys ic a l e xtra c tin g valu ab le
p h ys ic a l s u b s tan c e . s u b s ta n c e . re s ou rc e s .

L a n d , b u ild in g s , P a te n ts , c o p yrig h ts , O il re s e rves ,

eq u ip m e n t, tra d e m a rk s , tim b e r, o th e r
fu rn itu re, fixtu res . fra n c h is es , g o o d w ill. m in e ra ls .

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Intangible Assets

Noncurrent assets Often provide

without physical exclusive rights
substance. or privileges.

Characteristics

Useful life is Usually acquired

often difficult for operational
to determine. use.

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Intangible Assets

Record at current
cash equivalent
 Patents
cost, including  Copyrights
purchase price,  Leaseholds
legal fees, and  Leasehold
filing fees.
Improvements
 Goodwill
 Trademarks and
Trade Names

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Amortization
• Amortization is the systematic write-off to
expense of the cost of intangible assets
over their useful life or legal life,
whichever is shorter.
• Use the straight-line method to amortize
most intangible assets.

Date Description Debit Credit

Amortization Expense $$$$$
Intangible Asset $$$$$

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Goodwill

Occurs when one Only purchased

company buys goodwill is an
another company. intangible asset.

The amount by which the

purchase price exceeds the fair
market value of net assets acquired.

Goodwill is NOT amortized. It is tested

annually to determine if there has been
an impairment loss.
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Intangible Assets – Goodwill

Eddy Company paid $1,000,000 to

purchase all of James Company’s assets
and assumed liabilities of $200,000. The
acquired assets were appraised at a fair
value of $900,000.

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Intangible
Intangible Assets
Assets –– Goodwill
Goodwill

What amount of goodwill should be

recorded on Eddy Company books?

a. $100,000.
b. $200,000.
c. $300,000.
d. $400,000.

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Patents

Exclusive right granted

by federal government to sell or
manufacture an invention.

Cost is purchase Amortize cost

price plus legal over the shorter of
cost to defend. useful life or 20 years.

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Trademarks and Trade Names

A symbol, design, or logo
associated with a business.

Purchased
Internally trademarks
developed are recorded
trademarks at cost, and
have no amortized over
recorded shorter of legal
asset cost. or economic life.

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Franchises

Legally protected right to sell products or

provide services purchased by franchisee
from franchisor.

Purchase price is intangible asset

which is amortized over the shorter of
the protected right or useful life.
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Copyrights

Exclusive right granted by the

federal government to protect
artistic or intellectual properties.

Legal life is Amortize cost

life of creator over period
plus 70 years. benefited.

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Research and Development Costs

All expenditures classified as research and

development should be charged to
expense when incurred.

All of these R&D costs

will really reduce our
net income this year!

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Natural Resources

Total cost,
Extracted from
including
the natural
exploration and
environment
development,
and reported
is charged to
at cost less
depletion expense
accumulated
over periods
depletion.
benefited.

Examples: oil, coal, gold

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Depletion of Natural Resources

Depletion is calculated using the

units-of-production method.

Unit depletion rate is calculated as follows:

Cost – Residual Value

Total Units of Natural
Resource

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Depletion of Natural Resources

Total depletion cost for a period is:

Unit Depletion Number of Units
Rate × Extracted in Period

Cost of
Total goods sold
Inventory
depletion
for sale
cost Unsold
Inventory

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Depletion of Natural Resources

Specialized plant assets may be required to

extract the natural resource.

These assets should be depreciated over their

normal useful lives or over the life of the
natural resource, whichever is shorter.
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