INTERMEDIATE

ACCOUNTING
COURSE CODE: 121
GROUP MEMBERS
 INTANGIBLE ASSETS (IAS-38)

DEFINATION
Intangible asset is a non-physical asset such as a patent,
brand, trademark, or copyright

CHARACTERSTIC
• They are Identifiable
• They lack Physical esistence.
• They are not monetary assets
 VALUATION
PURCHASED INTANGIBLES:
• Recorded at cost.
• Includes all costs necessary to make the intangible asset ready
for its intended use.
• Typical costs include
⚬ Purchase price.
⚬ Legal fees.
⚬ Other incidental expenses.

INTERNALLY CREATED INTANGIBLES:

• Generally expensed till you reach technological feasibility
• Only capitalize direct costs incurred in developing the intangible,
such as legal costs.
 AMORTIZATION OF INTANGIBLES
Limited-Life Intangibles:
• Amortize by systematic charge to expense over useful life.
• Credit asset account or accumulated amortization.
• Useful life should reflect the periods over which the asset will
contribute to cash flows.
• Amortization should be cost less residual value.
Indefinite-Life Intangibles:
• No foreseeable limit on time the asset is expected to provide cash
flows.
• No amortization.
• Must test indefinite-life intangibles for impairment at least
annually.
 1 Marketing-related

2 Customer-related.

TYPES OF 3 Artistic-related.

INTANGIBLES 4 Contract-related.

5 Echnology-related.

6 Goodwill.
 MARKETING-RELATED INTANGIBLE ASSETS
Examples:
• Trademarks or trade names, newspaper mastheads, Internet domain
names, and non-competition agreements.
• In the United States trademark or trade name has legal protection
for indefinite number of 10 year renewal periods.
• Capitalize acquisition costs.
• No amortization

CUSTOMER-RELATED INTANGIBLE ASSETS

Examples:
• Customer lists, order or production backlogs, and both contractual
and non-contractual customer relationships.
• Capitalize acquisition costs.
• Amortized to expense over useful life.
 ARTISTIC-RELATED INTANGIBLE ASSETS
Examples:
• Plays, literary works, musical works, pictures, photographs, and
video and audiovisual material.
• Copyright granted for the life of the creator plus 70 years.
• Capitalize costs of acquiring and defending.
• Amortized to expense over useful life.

CONTRACT-RELATED INTANGIBLE ASSETS

Examples:
• Franchise and licensing agreements, construction permits, broadcast
rights, and service or supply contracts.
• Franchise (or license) with a limited life should be amortized to
expense over the life of the franchise.
• Franchise with an indefinite life should be carried at cost and not
 TECHNOLOGY-RELATED INTANGIBLE ASSETS
Examples:
• Patented technology and trade secrets granted by the U.S. Patent
and Trademark Office.
• Patent gives holder exclusive use for a period of 20 years.
• Capitalize costs of purchasing a patent.
• Expense any R&D costs in developing a patent.
• Amortize over legal life or useful life, whichever is shorter.
GOODWILL
Defination:
Goodwill is an intangible asset (an asset that's non-physical but
offers long-term value) which arises when another company
acquires a new business.
 RECORDING GOODWILL
Examples:
Global Corporation purchased the net assets of Local Company for
$300,000 on December 31, 2012. The balance sheet of Local Company
just prior to acquisition is:
 RECORDING GOODWILL
Journal entry recorded by Global:
 GOODWILL WRITE-OFF
Goodwill Write-off refers to the process of completely removing the
value of goodwill from a company's balance sheet when the goodwill is
no longer considered valuable or when it loses its economic benefits.
Example
Suppose Company A bought a business two years ago for $1,000,000,
and the goodwill recorded was $200,000. In the current year, after an
assessment, it's determined that the goodwill is now only worth
$50,000.
In this case, Goodwill Write-off would be calculated as follows:
Goodwill Write-off = Previous Goodwill - Current Value
($200,000) - ($50,000) = $150,000.
Accounting Treatment:
Income Statement: The $150,000 goodwill impairment loss is
recorded as an expense, reducing the company's net income.
 BARGAIN PURCHASE
A Bargain Purchase happens when a company buys another company or
its net assets for less than their fair market value (FMV), resulting in a
gain for the buyer.
Example
Company A is in financial trouble and needs to sell its business quickly.
The fair market value (FMV) of Company A's net assets is $500,000, but
they sell it to Company B for $400,000.
In this case, Goodwill Write-off would be calculated as follows:
Bargain Purchase Gain = FMV - Purchase Price
$500,000 - $400,000 = $100,000
Journal
Dr. Cash/Receivables/Inventory/Equipment (Net Assets) $500,000
Cr. Cash (Purchase Price)
$400,000
 IMPAIRMENT OF INTANGIBLE ASSETS (IAS 36)
DEFINATION
Impairment occurs when an intangible asset is deemed less
valuable than is stated on the balance sheet arter amortization
IMPAIRMENT OF LIMITED-LIFE INTANGIBLES
• If the sum of the expected future net cash flows is less than the
carrying amount of the asset, an impairment has occurred
(recoverability
Hence, test).
Recoverability test applied when,
carry amount > Expected future net cash flow for example,
• The
430000>400000
impairment loss is the amount by which the carrying amount
of the asset exceeds the fair value of the asset (fair value test).
So, loss on impairment = Carrying amout - Fair value
Journal for loss on impairment
Loss on impairment Dr ***
Intangible assets Cr ***
 IMPAIRMENT OF INDEFINITE-LIFE
INTANGIBLES OTHER THAN GOODWILL
• Companies should test this impairment method
at least annually.
• It is a Fair value test and not use the
Recoverability test.
• When Carrying value>Fair value the
impairment is recognized.
So, Loss on impairment=Carrying
value-Fair value
 IMPAIRMENT OF GOODWILL
• Must be tested at least annually.
• The impairment rule for goodwill is two-steps proccess:
1.If Fair value is less than the carrying value of net
assests[including goodwill],then iimpairment is
possible.
2.Determine the Fair amount of Implied valule of good
Here,willImplied
and compaire
value to
of carrying
goodwillvalue.
= Fair value - Net
identifiable assets[excluding goodwill]
Hence, Loss on impairment = Carrying amount – Implide
value of goodwill
 RESEARCH AND DEVELOPMENT
Introduction:
An ongoing effort to develop on improve products or
services, often undertaken by teams of highly skilled
scientists and enginees.
R & D activities
Frequently results in something that a company patents
or copyrights such as:
• New product • Formula,
• Process • Composition,
• Idea or
• Literary work.
 RESEARCH AND DEVELOPMENT

Two difficulties arise in accounting for R&D

expenditures
1.Identifying the costs associated with particular
activities projects or achievements
2.Determining the magnitude of the future
benefits and length of time.
 IDENTIFYING R & D ACTIVITIES
Research Activities Examples
Planned search or critical Laboratory research aimed at
investigation aimed at discovery of discovery of new knowledge;
new knowledge. searching for applications of new
research findings.
Development Activities Examples
Translation of research findings Conceptual formulation and design
or other knowledge into a plan or of possible product or process
design for a new product or alternatives; construction of
process or for a significant prototypes and
improvement to an existing operation of pilot plants.
product or process whether
intended for sale or use.
 ACCOUNTING FOR RESEARCH AND
DEVELOPMENT (R&D) ACTIVITIES
KEY ACCOUNTING PRINCIPLES FOR R&D:
• Expense Recognization
• Research vs. Development
• Capitalization Exceptions

EXAMPLES OF R&D COSTS

DISCLOSURE REQUIREMENTS
 COSTS SMIMILAR TO R&D COSTS

Many costs have characteristics similar to research and

development costs. I Examples are:
1.Start-up costs for a new operation.
2.Initial operating losses.
3.Advertising costs
For the most part, these costs are expensed as incurred
similar to the accounting for research costs. We briefly
explain these costs in the following scanctions.
THANK YOU!