Intangible Assets

What are the characteristics of intangible assets?

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

What are some common types of intangible assets?

Some common types include patents, copyrights, franchises or licenses, trademarks, and goodwill.

How are purchased intangible assets recorded?

They are recorded at cost, which includes all necessary costs to make the intangible asset ready for its intended use.

How are internally created intangibles valued?

They are generally expensed, but direct costs such as legal fees incurred in development can be capitalized.

What is the amortization process for limited-life intangibles?

Limited-life intangibles are amortized to expense over their useful life, evaluated for impairment.

What is goodwill?

Goodwill represents the future economic benefits from other assets in a business combination that are not separately identified.

When is goodwill recorded?

Goodwill is recorded only when an entire business is purchased, as the excess of purchase cost over fair value of net identifiable assets.

What is the impairment test for goodwill?

Impairment is recognized when the fair value of the reporting unit, including goodwill, is less than its carrying value.

What must companies do with indefinite-life intangibles?

They must test for impairment at least annually and cannot amortize them.

What are R&D costs classified as?

R&D costs are expensed when incurred and are not considered intangible assets themselves.

What distinguishes GAAP from IFRS regarding intangible assets?

IFRS allows for revaluation of limited-life intangible assets and some capitalization of internally generated intangibles, while GAAP requires expensing all internally generated costs.

What is the treatment of research activities under R&D costs?

All research activities are expensed as incurred; development activities may lead to the creation of patents or copyrights.

What do companies do if the carrying value exceeds the fair value of an indefinite-life intangible?

They must record an impairment loss for the difference.

How are customer-related intangibles treated in accounting?

They are capitalized and amortized to expense over their useful life.

What entries are made for the acquisition of a trademark?

The trademark is recorded as an asset without amortization but is tested for impairment annually.

What is an example of a bargain purchase?

A scenario where a purchaser pays less than the fair value of identifiable net assets, resulting in a gain.