Chapter 7: Intangible Assets

intangible assets

____ are identifiable non-monetary assets without physical substance. these are rights, privileges, and competitive advantages that result from the ownership of assets that do not posses physical substance

at cost

in general, the accounting from intangible assets is similar to the accounting for plant assets,

intangible assets are recorded ____

cost

____ is written off over useful life in a rational and systematic manner, assuming the useful life is LIMITED. at disposal, the carrying value is eliminated and the gain or loss, if any, is recorded

if the life of the intangible asset is indefinite, its cost should not be allocated

goodwill

____ is covered by PFRS 3: Business Combination

identifiability

it is separable, which means it is capable of being separated and sold, transferred, licensed, rented, or exchanged, either individually or together, with a related contract

it arises from contractual or other legal rights, regardless of whether those rights are transferrable or separable from the entity or from other rights or obligations

control

it is the capacity to control future economic benefits that stems from legal rights, which are enforceable in a court of law

future economic benefits

these pertain to revenues from the sale of products or services, cost savings, and other benefits resulting from the use of an intangible asset by an entity

true

an intangible asset can be recognized, whether purchased or self-created, if and only if:

• it is probable that expected future economic benefits will flow into the entity

• the cost of the asset can be measured reliably

true or false

exclude

directly attributable cost ___ the following:

• cost of introducing a new product or service

• cost of conducting business in a new location

• administration and overhead costs

• costs incurred while an asset is capable of operating

• initial operating losses

fair market value

when intangibles are acquired for consideration other than cash, the cost of the intangible is the ___ of the consideration given or the intangible asset received, whichever is more clearly evident. generally, costs incurred to create internally created intangibles are expenses as incurred.

intangibles can be acquired through the following:

• separate purchase

• as part of a business combination

• a government grant

• exchange of assets

• self-creation (internal generation)

trademark or trade name

a ___ is a word, phrase, jingle, or symbol that distinguishes or identifies a particular company or product. a trademark is a very effective tool that makes the public remember the quality of goods and services of a company. it is used to protect the brand name and is associated with the trade name. it can also protect symbols, logos, and slogans.

trademark or trade name

while a ___ is the official name under which a company does business, it is also known as a “doing business as” name or assumed name

trademark or trade name

in the philippines, a ___ can be protected through registration with the intellectual property office (IPO) of the philippines. registration gives the trademark owner the exclusive right to use the mark and to prevent others from using the same or similar marks or identical or related goods and services. a __ registration may be renews for a period of ten (10) years after the expiration of the original ten-year term

masthead

in publishing, a masthead is a list at the top of a page that includes the names of the editors, writers and owners, as well as the title of the newspaper or magazine.

the ___ is usually found on one of the first few pages of the newspaper.

internet domain names

____ are labels used to identify one or more internet protocol (IP) addresses

customer-related intangibles

occur as a result of interactions with outside parties

they consist of information gathered from repeated transactions, with or without underlying contracts.

customer databases normally include the name, contact information, order history, and demographic information of customers

companies can lease, sell, buy or trade such information, which are generally organized as customer list

artistic-related intangibles

______ involve ownership rights to literary works, musical works, pictures, photographs, videos, and audio-visual materials. the ownership rights are protected by copyrights.

copyrights are granted by the government, thus, giving the owner the exclusive right to reproduce and sell an artistic or published work

in the philippines, copyright protection for artistic, literary and derivative works lasts for the lifetime of the author, plus 50 years after the author’s death

contract-related intangibles

_____ represent the value of rights that arise from contractual arrangements

ex.

franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts

technology-related intangibles

_____ refer to innovations or technological advances

ex.

patented technologies and trade secrets

patent

an exclusive right, which is issued by the government through the intellectual property office of the philippines, that enables the recipient to manufacture, sell, or otherwise control his/her invention for a period of 20 years from the date of the grant

it’s an exclusive right granted for a product, a process, or an improvement of a product or process that is new, inventive, and useful

20

a patent has a term of protection of ____ years, providing an inventor significant commercial gain. in return, the patent owner must share the full description of the invention

Intellectual property official gazette

under the technology-related intangibles, the full description of the invention is made available to the public through the _____ and can be utilized as basis for future research and help promote innovation and development

cash or cash equivalent

the initial cost of a patent is the _____ paid when the patent is acquired.

legal costs

____ incurred in defending the patent are expensed immediately

amortized

the cost of the patent should be ____ over its legal life of 20 years or useful life, whichever is shorter

goodwill

____ is an intangible asset that can arise when a buyer acquires an existing business. ____ amounts to the excess of the purchase consideration the money paid to purchase the asset or business over the total value of the assets, minus the liabilities

the excess is attributed to the business entity’s superior management, skilled employees, high-quality products, fair pricing policies, and harmonious relations with labor unions

goodwill

____ can be identified only with the business as a whole.

it is recorded when there is an exchange transaction that involves the purchase of an entire business or a business combination

the cost is assigned to the identifiable tangible or intangible assets, and the remainder is recorded as ___

it can only be sold by selling the whole business

research and development cost

____ are costs that are spent on developing new products and processes. such costs are usually recorded as expenses when incurred

indefinite useful life

no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity

finite useful life

a limited period of benefit to the entity

true

an intangible asset with an indefinite useful life SHOULD NOT be amortized

true or false

amortization

the systematic write-off of an intangible asset is referred to as ____

the cost less residual value of an intangible asset with a finite useful life should be amortized on a systematic basis over that life

amortization method

____ should reflect the pattern of benefits and is typically computed on a straight-line basis

amortization charge

____ is recognized as an expense with a corresponding increase in the accumulated amortization account or a decrease in the intangible asset account

annually

the amortization period should be reviewed at least ____