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Financial Reporting and Analysis - PDF Room-122

The document discusses the treatment of goodwill and various intangible assets such as patents, trademarks, franchises, and copyrights, highlighting their valuation and amortization practices in different countries. It includes a balance sheet for 3M Company, detailing its assets, including goodwill and other intangibles, as of December 31 for the years 2005 and 2006. The document emphasizes the importance of testing trademarks for impairment and outlines the amortization requirements for limited-life intangibles.

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21 views

Financial Reporting and Analysis - PDF Room-122

The document discusses the treatment of goodwill and various intangible assets such as patents, trademarks, franchises, and copyrights, highlighting their valuation and amortization practices in different countries. It includes a balance sheet for 3M Company, detailing its assets, including goodwill and other intangibles, as of December 31 for the years 2005 and 2006. The document emphasizes the importance of testing trademarks for impairment and outlines the amortization requirements for limited-life intangibles.

Uploaded by

nasmilkhan1
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 3 Balance Sheet 105

The global treatment of goodwill varies significantly. In some countries, goodwill is not
recorded because it is charged to stockholders’ equity. In this case, there is no influence to
reported income. In some countries, goodwill is expensed in the year acquired. In many coun-
tries, goodwill is recorded and amortized.

Patents Patents, exclusive legal rights granted to an inventor for a period of 20 years, are
valued at their acquisition cost. The cost of a patent should be amortized over its legal life or
its useful life, whichever is shorter.

Trademarks Trademarks are distinctive names or symbols. Rights are granted indefinitely as
long as the owner uses it in connection with the product or service and files the paperwork.
Since a trademark has an indefinite life, it should not be amortized. Trademarks should be
tested for impairment at least annually.

Franchises Franchises are the legal right to operate under a particular corporate name, pro-
viding trade-name products or services. The cost of a franchise with a limited life should be
amortized over the life of the franchise.

Copyrights Copyrights are rights that authors, painters, musicians, sculptors, and other artists
have in their creations and expressions. A copyright is granted for the life of the creator, plus
70 years. The costs of the copyright should be amortized over the period of expected benefit.
Exhibit 3-9 displays the 3M Company presentation of intangibles. It consists of goodwill
and other intangibles.

Exhibit 3-9 3M COMPANY ∗


Balance Sheet
Intangibles

Consolidated Balance Sheet


3M Company and Subsidiaries
At December 31

(Dollars in millions, except per share amount) 2006 2005


ASSETS
Current assets:
Cash and cash equivalents $ 1,447 $ 1,072
Marketable securities—current 471 —
Accounts receivable—net of allowance of $71 and $73 3,102 2,838
Inventories
Finished goods 1,235 1,050
Work in progress 795 706
Raw materials and supplies 571 406
Total inventories ,2,601 ,2,162
Other current assets 1,325 1,043
Total current assets 8,946 7,115
Marketable securities—noncurrent 166 —
Investments 314 272
Property, plant and equipment 17,017 16,127
Less: Accumulated depreciation (11,110) (10,534)
Property, plant and equipment—net 5,907 5,593
Goodwill 4,082 3,530
Intangible assets—net 708 486
Prepaid pension and postretirement benefits 395 2,905
Other assets 776 640
Total assets $21,294 $20,541

∗“3M is a diversified technology company with a global presence in the following businesses: industrial and transportation; health
care; display and graphics; consumer and office; safety, security and protection services; and electro and communications.” 10-K
(continued)

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