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11 views

Intangible Assets_Summary.xlsx

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IFTEKHAR KABIR
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 12 Intangible Assets

Characteristics

1.Lack physical existence.


2.Not financial instruments.
3. Normally classified as long-term asset.

Valuation
1. Purchased Intangibles
•Recorded at cost
•Includes all costs necessary to make the intangible asset ready for its intended use

2. Internally Created Intangibles


•Recorded at cost
•Generally expensed
•Only capitalize direct costs incurred in developing intangible, such as legal costs

** Cost
** Useful Life
** Salvage Value

Amortization of Intangibles

Limited-Life Intangibles 1. Recoveribility test


•Amortize to expense over useful life 2.fair value test
•Useful life should reflect the periods over which the asset will contribute to cash flows
•Companies should evaluate the limited-life intangibles for impairment

Indefinite-Life Intangibles

•Must test indefinite-life intangibles for impairment at least annually


•No amortization
* Impairment test

Six Major Categories:

1.Marketing-related. Trademarks indefinite


2.Customer-related. Customer lists
3.Artistic-related. Copyright life of the creator plus 70 years
4.Contract-related. Franchise (or license)
5.Technology-related. Patent 20 years
6.Goodwill.
excess of cost of the purchase over the fair value of the identifiable net assets
(assets less liabilities) purchased.
Internally created goodwill should not be capitalized.

Goodwill
purchased
Co A Net Asset
of Co B Goodwill for Co A Assets
Pay 100000 80000 20000

Pay 70000 80000 10000 > Previously it was called Negitive goodwill
> Gain on Bargain purchase I/S

Impairment of Limited-Life Intangibles

1.If the sum of the expected future net cash flows (undiscounted) is less than the carrying amount of the asset,
an impairment has occurred (recoverability test).
2.The impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the
asset (fair value test).

Patent 80000 4 years

1. Recoveribility test PVFCF 1 yrs 2yrs 3yrs 4yrs


60000 xx xx xx xx
2.fair value test FV
65000

Amortisation expense Dr 15000 (80000-65000)


Patent or Accmulated Amortisation
Cr 15000

Impairment of Indefinite-Life Intangibles Other than Goodwill

•Should be tested for impairment at least annually


•Impairment test is a fair value test
•If fair value of asset is less than carrying amount, an impairment loss is recognized for the difference
•Recoverability test is not used

Licence 80000 80000


Market value 70000 95000
Impairment loss 10000 (Loss) 15000 (Gain)

Impairment loss Dr 10000


Licence Cr 10000

Impairment of Goodwill

Two Step Process:


Step 1: If fair value is less than the carrying amount of the reporting unit (including
goodwill), then perform a second step to determine possible impairment.

Step 2: Determine the fair value of the goodwill (implied value of goodwill) and compare to carrying amount.

Co A Net Asset Market Value


150000 Step 1 145000

Goodwill 30000 Step 2 28000 Impairment loss 200031000

Impairment loss Dr 2000


Goodwill Cr 2000

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