Lecture Intermediate Accounting (13th edition) - Chapter 12: Intangible assets

After completing this chapter you should be able to: Describe the characteristics of intangible assets, identify the costs to include in the initial valuation of intangible assets, explain the procedure for amortizing intangible assets, describe the types of intangible assets...and other contents.

Chapter 12-1

Chapter

12-4

related Customer- related Artistic- related Contract- related Technology- related

Marketing-Goodwill

Intangible Asset

Issues

Types of Intangibles

Impairment of Intangibles

Research and Development Costs

Presentation of Intangibles and Related Items

Identifying R&D

Accounting for R&D

Similar costs Conceptual questions

Intangible assets R&D costs

Intangible Assets

Intangible Assets

Trademarks or trade names Goodwill

Internally Created  Intangibles:

Generally expensed.

Only capitalize direct costs incurred in developing the intangible, such as  legal costs.

Trademark  or  trade name  has legal protection for indefinite number of 

10 year renewal periods. 

Capitalize acquisition costs. 

No amortization.

Amortized to expense over useful life.

Record the purchase of the customer list and the amortization of the  customer list at the end of each year.

Copyright  is granted for the life of the creator plus 70 years.

Capitalize acquisition costs. 

Amortized to expense over useful life.

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  amortized.

Patent  gives the holder exclusive use for a period of 20 years.

Capitalize costs of purchasing a patent.

Expense any R&D costs in developing a patent. 

Legal fees incurred successfully defending a patent are capitalized to  Patent account.

Patent amortization expense  9,000 Dec. 31

Chapter

12-19

Illustration:   Multi­Diversified investigates Tractorling’s underlying assets to  determine their fair values.

$200,000

Chapter

12-23 LO 6  Describe the accounting procedures for recording goodwill.

Book Value = $130,000 Fair Value = $200,000 Purchase Price = $300,000

Ac c ount s   pa y a b le         (2 5 , 0 0 0 )

Pur c h a s e   pr ic e       3 0 0 , 0 0 0 Good will $     1 0 0 , 0 0 0

Purchase price  less than  the fair value of net assets acquired.

Amount is recorded as a  gain  by the purchaser.

LO 6  Describe the accounting procedures for recording goodwill.

Chapter

12-29

E12­14:  (Copyright Impairment)  Presented below is information related to copyrights  owned by Botticelli Company at December 31, 2010.

(3 0 0 ,0 0 0 )

$          

Asset is Impaired

Loss on impairment  1,100,000

Chapter

12-34

Illustration 12-7

Illustration:   Arcon Radio purchased a broadcast license for $2,000,000.  Arcon Radio  has renewed the license with the FCC twice, at a minimal cost. Because it expects cash  flows to last indefinitely, Arcon reports the license as an indefinite­life intangible asset.   Recently the FCC decided to auction these licenses to the highest bidder instead of 

Step 2:   Determine the fair value of the goodwill (implied value of 

goodwill) and compare to carrying amount.

Car r ying am o unt , ne t  of  go od will

I m plie d  go od will Car r ying value  of  goo d will Los s  on im pair m e nt

$      (25)

Adjusted carrying amount of the goodwill is its new accounting basis.  Subsequent reversal of recognized impairment losses is not permitted  under SFAS No. 142.

formula,  composition, or literary work.

Because of difficulties related to identifying costs with particular 

activities and determining the future benefits, all R & D costs are 

expensed when incurred

Laboratory research aimed at discovery of new  knowledge; searching for applications of new  research findings.

Illustration 12-13

Purchased Intangibles Contract Services

Indirect Costs

Research and Development Costs

Research and Development Costs

LO 9  Describe the accounting for research and development and similar costs.

128,000 50,000 34,000

$56,000 59,000 100,000

128,000 50,000

0

R&D  Expense

$393,000

$280,000 / 5 = $56,000 

Research and Development Costs

Research and Development CostsExample:  Compute the amount to be reported as research and development expense.

LO 9  Describe the accounting for research and development and similar costs.

Presentations of Intangibles and R & D

Presentations of Intangibles and R & D

LO  10 Indicate the presentation of intangible assets and related items.

Chapter

12-51

Presentations of R & D Costs

Presentations of R & D Costs

LO  10 Indicate the presentation of intangible assets and related items.

Illustration 12-16

amortize  them in the future?

Chapter

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