Intangible Assets, Goodwill, and R&D Accounting

Practice flashcards covering the characteristics, valuation, amortization, and impairment of intangible assets, goodwill, and research and development costs based on lecture notes.

Intangible Assets

Assets that lack physical existence and are not financial instruments, normally classified as long-term assets.

Purchased Intangibles

Intangible assets recorded at cost, including all costs necessary to make the asset ready for its intended use, such as purchase price and legal fees.

Internally Created Intangibles

Assets generally recorded by expensing most costs, capitalizing only direct costs such as legal fees incurred in development.

Amortization

The process of allocating the cost of limited-life intangibles to expense over their useful life, typically by crediting the asset account directly.

Limited-Life Intangibles

Intangible assets with a useful life reflecting the periods they contribute to cash flows; they are amortized and evaluated for impairment.

Indefinite-Life Intangibles

Assets with no foreseeable limit on the time they are expected to provide cash flows; they are not amortized but must be tested for impairment at least annually.

Recoverability Test

Step one of the impairment process for limited-life intangibles where expected future net cash flows (undiscounted) are compared to the carrying value.

Fair Value Test (Limited-Life)

Step two of the impairment process for limited-life intangibles where the impairment loss is calculated as the carrying amount of the asset less its fair value.

Marketing-Related Intangible Assets

Examples include trademarks, trade names, and Internet domain names; in the United States, these have legal protection for an indefinite number of $10$-year renewal periods.

Customer-Related Intangible Assets

Assets such as customer lists and production backlogs that are capitalized and amortized over their useful life.

Artistic-Related Intangible Assets

Assets like plays, musical works, and photographs; a copyright is granted for the life of the creator plus $70$ years.

Contract-Related Intangible Assets

Rights arising from franchise and licensing agreements, construction permits, or broadcast rights.

Technology-Related Intangible Assets

Includes patented technology and trade secrets; a patent gives the holder exclusive use for $20$ years.

Crypto-Related Intangible Assets

Indefinite-life assets recorded at cost and adjusted to fair value with unrealized holding gains and losses reported in net income.

Goodwill

The excess of the cost of a purchase over the fair value of the identifiable net assets (assets less liabilities) purchased in a business combination.

Reporting Unit (Goodwill Impairment)

The level at which goodwill is tested for impairment by comparing its fair value (including goodwill) to its carrying value.

Bargain Purchase

A situation where a purchaser in a business combination pays less than the fair value of the identifiable net assets, resulting in a recorded gain.

Research Activities

Planned search or critical investigation aimed at discovery of new knowledge, such as laboratory research.

Development Activities

The translation of research findings into a plan or design for a new or significantly improved product or process.

Alternative Future Use

A condition for R&D materials, equipment, or facilities that allows them to be capitalized and depreciated as R&D expense rather than expensed immediately.