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Notes for Intangible Assets

The document outlines the characteristics and accounting treatment of intangible assets, including their initial recognition, subsequent recognition, and amortization rules. It categorizes intangible assets into various types such as marketing-related, customer-related, artistic-related, contract-based, and technology-based assets, detailing their costs and amortization methods. Specific examples like patents, trademarks, copyrights, and franchises are discussed, highlighting their costs, useful lives, and impairment testing requirements.

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Karen Lucas
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15 views

Notes for Intangible Assets

The document outlines the characteristics and accounting treatment of intangible assets, including their initial recognition, subsequent recognition, and amortization rules. It categorizes intangible assets into various types such as marketing-related, customer-related, artistic-related, contract-based, and technology-based assets, detailing their costs and amortization methods. Specific examples like patents, trademarks, copyrights, and franchises are discussed, highlighting their costs, useful lives, and impairment testing requirements.

Uploaded by

Karen Lucas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Separable

Identifiability Contract or Legal Rights


INTANGIBLE ASSETS Attributes Control Risk and rewards
Future economic benefits Increased revenue
Cost reduction
Identifiable non-monetary assets
Without physical substance

Examples:
a. Marketing related: Brand names, Internet domain name, Trademarks, Newspaper mastheads,
Noncompetition agreements
b. Customer related: Customer lists, Order or production backlogs, Customer relationships
c. Artistic related: Copyrights
d. Contract based: Franchises, Licensing agreements, Construction permits, Broadcast rights, Service or
supply contracts
e. Technology-based: Patent, trade secrets
INTANGIBLE ASSETS

Initial Recognition

At COST

Separate Acquisition Business Government Exchange Self-creation


1. Cash Combination Grants 1. Research costs – EXPENSED
2. Installment basis 2. Development costs – TIAPAR
3. Thru stocks i. Technical feasibility
i. FV of asset received ii. Intention to complete and sell
ii. FV of shares issued iii. Ability to use or sell
iii. Par value of shares issued iv. Probable future economic ben.
4. Thru bonds payable v. Adequate resources to complete
i. FV of bonds payable issued vi. Reliably measured
ii. FV of asset received
iii. Face value of the BP issued Assets that cannot be capitalized:
a. Internally generated brands
b. Mastheads
c. Customer lists and similar items
d. Publishing titles
INTANGIBLE ASSETS

Subsequent Recognition

Cost Model Revaluation model

Cost
less any amortization and impairment losses

Rules on Amortization and Impairment:

1. Based on useful life of assets:


i. Definite life: amortized annually; subjected only to test of impairment if there are
indicators
ii. Indefinite life: not amortized but subjected to test of impairment at least annually
2. The amortization method shall reflect the pattern in which the asset is consumed, but if
cannot be reliably determined, use the STRAIGHT-LINE METHOD.
3. Residual Value is ZERO, unless:
i. Third party commitment, or
ii. Active market will exist at the end of useful life
PATENT

Cost:
a. When purchased: Purchase price + directly attributable costs
b. When internally-generated: Licensing and other related legal fees

Expensed Immediately:

1. Research and development costs


2. Legal fees and other costs of whether successfully or unsuccessfully prosecuting or
defending the patent

Amortization of Patent

1. Over the legal life (20 years) or the useful life, whichever is SHORTER.
2. If a competitive patent is acquired, competitive patent and original OLD patent will be
amortized over the remaining life of original OLD patent
3. Acquisition of related patent
i. Extension of life – both are amortized over the extended life
ii. No extension of life
a. NEW patent – over its own life
b. Original OLD patent – over the remaining useful life
TRADEMARK

Cost
a. When purchased: Purchase price + directly attributable cost to the acquisition
b. If internally developed: Filing fees, registry fees, and other expenses in securing the trademark

Amortization of Trademark

The legal life of trademark is 10 years and may be renewed for periods of 10 years each. Because
of easy renewal, it is to be classified as intangible asset with indefinite life. Therefore, trademark is
not amortized but tested for impairment at least annually.
COPYRIGHT

Cost
a. Developed copyright: Expenses incurred in production of work including to obtain the right
b. Purchased: Cash paid, and other expenses incidental to the acquisition

Useful Life

During the lifetime of author and for fifty (50) years after his death

Amortization of Copyright

Shall be based on the copyright’s useful life but practically, the cost is written off against the
revenue of first printing
FRANCHISE

Cost
a. Initial franchise fee – capitalized as cost of franchise
b. Continuing franchise fee – considered as operating expense of the company

Amortization of Franchise

a. Granted for definite period – amortized over the useful life or definite period, SHORTER
b. Granted indefinitely – not amortized but tested for impairment at least annually

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