12-10
1. Describe the characteristics of intangible
assets.
2. Identify the costs to include in the initial
valuation of intangible assets.
3. Explain the procedure for amortizing
intangible assets.
4. Describe the types of intangible assets.
5. Explain the accounting issues for recording
goodwill.
LEARNING OBJECTIVES
6. Explain the accounting issues related to
intangible asset impairments.
7. Identify the conceptual issues related to
research and development costs.
8. Describe the accounting for research and
development and similar costs.
9. Indicate the presentation of intangible assets
and related items.
After studying this chapter, you should be able to:
Intangible Assets
12
12-11
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.
Companies must evaluate the limited-life intangibles annually for impairment.
LO 3
12-12
Amortization of Intangibles
LO 3
Indefinite-Life Intangibles
No foreseeable limit on time the asset is expected to provide cash flows.
Must test indefinite-life intangibles for impairment at least annually.
No amortization.
12-13 ILLUSTRATION 12-2
Accounting Treatment for Intangibles
Amortization of Intangibles
LO 3
12-14
1. Describe the characteristics of intangible
assets.
2. Identify the costs to include in the initial
valuation of intangible assets.
3. Explain the procedure for amortizing
intangible assets.
4. Describe the types of intangible
assets.
5. Explain the accounting issues for recording
goodwill.
LEARNING OBJECTIVES
6. Explain the accounting issues related to
intangible asset impairments.
7. Identify the conceptual issues related to
research and development costs.
8. Describe the accounting for research and
development and similar costs.
9. Indicate the presentation of intangible assets
and related items.
After studying this chapter, you should be able to:
Intangible Assets
12
12-15
Six Major Categories:
1 Marketing-related.
2 Customer-related.
3 Artistic-related.
4 Contract-related.
5 Technology-related.
6 Goodwill.
LO 4
12-16
Marketing-Related Intangible Assets
Examples:
►
Trademarks or
trade names , newspaper
mastheads, Internet domain names, and non- competition agreements.
In the United States trademarks or trade names have legal protection for indefinite number of 10 year
renewal periods.
Capitalize purchase price.
No amortization.
LO 4
12-17
Companies go to great extremes to protect their valuable intangible assets.
Consider how the creators of the highly successful game Trivial Pursuit
protected their creation. First, they copyrighted the 6,000 questions that
are at the heart of the game. Then they shielded the Trivial Pursuit name by
applying for a registered trademark. As a third mode of protection, they
obtained a design patent on the playing board’s design as a unique graphic
creation.
Another example is the iPhone trade name.
Cisco Systems
USA sued
Apple USA for using the iPhone
trade name when Apple introduced its hot new phone in 2007. Not so
fast, said Cisco, which had held the iPhone trade name since 2000 and
was using it on its own Voice over Internet Protocol VoIP products.
The two companies came to an agreement for joint use of the name.
It was not disclosed what Apple paid for this arrangement, but it is not
surprising why Apple would want to settle
—to avoid a costly delay to the launch of its highly anticipated
iPhone.
LO 4
MY INTANGIBLE
Source: Nick Wingfield, “Apple, Cisco Reach Accord Over iPhone,” Wall Street Journal Online February 22,
2007.
12-18
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.
LO 4
12-19
Illustration: Green Market Inc. acquires the customer list of a large
newspaper for €6,000,000 on January 1, 2015. Green Market
expects to benefit from the information evenly over a three-year
period. Record the purchase of the customer list and the amortization of the customer list at the end of each year.
Customer List 6,000,000
Jan. 1 2015
Cash 6,000,000
Amortization Expense 2,000,000
Dec. 31 2015
2016 2017
Customer List 2,000,000
or Accumulated Amortization
LO 4
12-20
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 if less than the legal life.
Mickey Mouse
and
LO 4
12-21
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
as operating expense over the life of the franchise.
Franchise with an indefinite life should be carried at cost and not amortized.
LO 4
12-22
Technology-Related Intangible Assets
Examples:
►
Patented technology and trade secrets granted by a government body.
Patent gives holder exclusive use for a period of 20 years.
Capitalize costs of purchasing a patent.
Expense any RD costs in developing a patent.
Amortize over legal life or useful life, whichever is shorter.
LO 4
12-23
Illustration: Harcott Co. incurs 180,000 in legal costs on January
1, 2015, to successfully defend a patent. The patent’s useful life is
20 years, amortized on a straight-line basis. Harcott records the legal fees and the amortization at the end of 2015 as follows.
Patents 180,000
Jan. 1
Cash 180,000
Patent Amortization Expense 9,000
Dec. 31 Patents
or Accumulated Amortization
9,000
LO 4
Patent Amortization Expense = 180,000 ÷ 20 = 9,000
12-24
1. Describe the characteristics of intangible
assets.
2. Identify the costs to include in the initial
valuation of intangible assets.
3. Explain the procedure for amortizing
intangible assets.
4. Describe the types of intangible assets.
5. Explain the accounting issues for
