Kế toán tài chính 2 - Chapter 11: Intangible assets

CHAPTER 11INTANGIBLE ASSETSINTERMEDIATE ACCOUNTINGPrinciples and Analysis 2nd EditionWarfield Weygandt Kieso 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.Explain the conceptual issues related to goodwill.Describe the accounting procedures for recording goodwill.Explain the accounting issues related to impairments.Identify the conceptual issues related to research and development costs.Describe the accounting for research and development and similar costs.Indicate the presentation of intangible assets and related items.Learning ObjectivesMarketing-relatedCustomer-relatedArtistic-relatedContract-relatedTechnology-relatedGoodwillIntangible Asset IssuesTypes of IntangiblesImpairmentsResearch and Development CostsPresentation of Intangibles and Related ItemsCharacteristicsValuationAmortizationProperty, plant, and equipmentLimited-life intangiblesIndefinite-life intangibles other than goodwillGoodwillRestoration of impairment lossAssets held for disposalIdentifying R&DAccounting for R&DOther costsConceptual questionsIntangible assetsR&D costsIntangible AssetsIntangible Asset IssuesLO 1 Describe the characteristics of intangible assets.Two Main Characteristics:CharacteristicsThey lack physical existence.They are not financial instruments.Normally classified as long-term asset.Common types of intangibles:PatentsCopyrightsFranchises or licensesTrademarks or trade namesGoodwillIntangible Asset IssuesLO 2 Identify the costs to include in the initial valuation of intangible assets.Purchased Intangibles:Recorded at cost.Includes all costs necessary to make the intangible asset ready for its intended use.ValuationInternally Created Intangibles:Generally expensed.Only capitalize direct costs incurred in developing the intangible, such as legal costs.Intangible Asset IssuesLO 3 Explain the procedure for amortizing intangible assets.Amortization of IntangiblesLimited-Life Intangibles:Amortize to expense.Credit asset account or accumulated amortization.Indefinite-Life Intangibles:No foreseeable limit on time the asset is expected to provide cash flows. No amortization.Intangible Asset IssuesLO 3 Explain the procedure for amortizing intangible assets.Accounting for IntangiblesIllustration 11-1Types of IntangiblesLO 4 Describe the types of intangible assets.Six Major Categories:Marketing-related.Customer-related.Artistic-related.Contract-related.Technology-related.Goodwill.Types of IntangiblesLO 4 Describe the types of intangible assets.Marketing-Related Intangible AssetsExamples are: Trademarks or trade names, newspaper mastheads, Internet domain names, and noncompetition agreements.Trademark or trade name has legal protection for indefinite number of 10 year renewal periods. Capitalize acquisition costs. No amortization.Types of IntangiblesLO 4 Describe the types of intangible assets.Customer-Related Intangible AssetsExamples are: Customer lists, order or production backlogs, and both contractual and noncontractual customer relationships.Capitalize acquisition costs. Amortized to expense over useful life.Types of IntangiblesLO 4 Describe the types of intangible assets.Artistic-Related Intangible AssetsExamples are: Plays, literary works, musical works, pictures, photographs, and video and audiovisual material.Copyright is granted for the life of the creator plus 70 years.Capitalize acquisition costs. Amortized to expense over useful life.Types of IntangiblesLO 4 Describe the types of intangible assets.Contract-Related Intangible AssetsExamples are: Franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts.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.Types of IntangiblesLO 4 Describe the types of intangible assets.Technology-Related Intangible AssetsExamples are: Patented technology and trade secrets granted by the U.S. Patent and Trademark Office.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.Types of IntangiblesLO 5 Explain the conceptual issues related to goodwill.GoodwillOnly recorded when an entire business is purchased because goodwill cannot be separated from the business as a whole.Goodwill is recorded as the excess of ... purchase price over the FMV of the identifiable net assets acquired.Internally created goodwill should not be capitalized.Example: Global Corporation purchased the net assets of Local Company for $300,000 on December 31, 2008. The balance sheet of Local Company just prior to acquisition is:Recording GoodwillLO 6 Describe the accounting procedures for recording goodwill.FMV of Net Assets = $200,000Example: Global Corporation purchased the net assets of Local Company for $300,000 on December 31, 2008. The balance sheet of Local Company just prior to acquisition is:Recording GoodwillLO 6 Describe the accounting procedures for recording goodwill.LO 6 Describe the accounting procedures for recording goodwill.Book Value = $130,000Fair Value = $200,000Purchase Price = $300,000Revaluation$70,000Goodwill$100,000Recording GoodwillExample: Global Corporation purchased the net assets of Local Company for $300,000 on December 31, 2008. The balance sheet of Local Company just prior to acquisition is:LO 6 Describe the accounting procedures for recording goodwill.Recording GoodwillExample: Global Corporation purchased the net assets of Local Company for $300,000 on December 31, 2008. The balance sheet of Local Company just prior to acquisition is:Journal entry recorded by Global:Cash 15,000Receivables 10,000Inventory 70,000Equipment 130,000Goodwill 100,000 Accounts Payable 25,000 Cash 300,000GoodwillGoodwill Write-offGoodwill considered to have an indefinite life. Should not be amortized.Only adjust carrying value when goodwill is impaired.LO 6 Describe the accounting procedures for recording goodwill.GoodwillNegative Goodwill – Bargain PurchasePurchase price less than the fair value of net assets acquired (bargain purchase).Results in a credit, referred to as negative goodwill.Negative goodwill must be allocated against long-term assets acquired, any remaining is accounted for as an extraordinary gain.LO 6 Describe the accounting procedures for recording goodwill.ImpairmentsWhen the carrying amount of an asset is not recoverable, a company records a write-off referred to as an impairment. LO 7 Explain the accounting issues related to intangible-asset impairments.Illustration 11-6ImpairmentsImpairment of Property, Plant, and EquipmentReview events for possible impairment.If the review indicates impairment, apply the recoverability test. If the sum of the expected future net cash flows from the long-lived asset is less than the carrying amount of the asset, an impairment has occurred.3. Assuming an impairment, the impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value is the market value or the present value of expected future net cash flows.LO 7 Explain the accounting issues related to intangible-asset impairments.Exercise: Presented below is information related to equipment owned by Suarez Company at December 31, 2008. Assume that Suarez will continue to use this asset in the future. As of December 31, 2008, the equipment has a remaining useful life of 4 years.Instructions:Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2008.ImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Loss on Impairment 3,200,000 Accumulated Depreciation 3,200,000Impairments12/31/08LO 7 Explain the accounting issues related to intangible-asset impairments.ImpairmentsImpairment of Limited-Life IntangiblesLO 7 Explain the accounting issues related to intangible-asset impairments.Same as impairment for property, plant, and equipment.If the sum of the expected future net cash flows is less than the carrying amount of the asset, an impairment has occurred (recoverability test).The impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset (fair value test). The loss is reported as part of income from continuing operations, “Other expenses and losses” section.Exercise: (Copyright Impairment) Presented below is information related to copyrights owned by Walter de la Mare Company at December 31, 2008.LO 7 Explain the accounting issues related to intangible-asset impairments.The copyright has a remaining useful life of 10 years.Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2008. ImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Recoverability test: If the sum of the expected future net cash flows is less than the carrying amount of the asset, an impairment has occurred.Asset is ImpairedImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2008. Loss on Impairment 1,100,000 Copyrights 1,100,000ImpairmentsImpairment of Indefinite-Life Intangibles Other than GoodwillLO 7 Explain the accounting issues related to intangible-asset impairments.Should be tested for impairment at least annually.Impairment test is a fair value test.If the fair value of asset is less than the carrying amount, an impairment loss is recognized for the difference.Recoverability test is not used.ImpairmentsImpairment of GoodwillLO 7 Explain the accounting issues related to intangible-asset impairments.Two Step Process:Step 1: If fair value is less than the carrying amount of the net assets (including goodwill), then perform a second step to determine possible impairment.Step 2: Determine the fair value of the goodwill (implied value of goodwill) and compare to carrying amount.ImpairmentsExercise: (Goodwill Impairment) Presented below is net asset information related to the Carlos Division of Santana, Inc. as of December 31, 2008 (in millions):LO 7 Explain the accounting issues related to intangible-asset impairments.Management estimated its future net cash flows from the division to be $400 million. Management has also received an offer to purchase the division for $335 million. All identifiable assets’ and liabilities’ book and fair value amounts are the same.ImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Exercise Instructions:(a) Prepare the journal entry (if any) to record the impairment at December 31, 2008.Loss on Impairment 15,000,000 Goodwill 15,000,000Step 1: The fair value of the reporting unit is below its carrying value. Therefore, an impairment has occurred. Step 2:ImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Exercise Instructions(b) At December 31, 2008, it is estimated that the division’s fair value increased to $345 million. Prepare the journal entry (if any) to record this increase in fair value.No entry necessary. Adjusted carrying amount of the goodwill is its new accounting basis. Subsequent reversal of recognized impairment losses is not permitted under SFAS No. 142.ImpairmentsImpairmentsAccounting for ImpairmentsLO 7 Explain the accounting issues related to intangible-asset impairments.Research and Development CostsLO 8 Identify the conceptual issues related to research and development costs.Frequently results in something that a company patents or copyrights such as:New product, Process, Idea, Formula, Composition, orLiterary work.Because of difficulties related to identifying costs with particular activities and determining the future benefits, all R & D costs are expensed when incurred.Identifying R & D ActivitiesResearch and Development CostsLO 8 Identify the conceptual issues related to research and development costs.Illustration 11-14Accounting for R & D ActivitiesCosts Associated with R&D Activities:Materials, equipment, and facilitiesPersonnelPurchased intangiblesContract servicesIndirect costsResearch and Development CostsLO 9 Describe the accounting for research and development and similar costs.1. Long-term investments1. Investment in a subsidiary company2. Timberland 3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.4. Lease prepayment 5. Cost of equipment obtained under a capital lease.6. Cost of searching for applications of new research findings.ItemClassificationResearch and Development CostsExercise: Indicate how items on the list below would generally be reported in the financial statements. 2. PP&E3. R & D expense4. Prepaid rent5. PP&E6. R & D expenseLO 9 Describe the accounting for research and development and similar costs.7. Expense7. Cost incurred in the formation of a corporation.8. Operating losses incurred in the start-up of a business.9. Training costs incurred in start-up of new operation.10. Purchase cost of a franchise.11. Goodwill generated internally.12. Cost of testing in search of product alternatives.ItemClassificationResearch and Development Costs8. Operating loss9. Expense10. Intangible11. Not recorded12. R & D expenseLO 9 Describe the accounting for research and development and similar costs.Exercise: Indicate how items on the list below would generally be reported in the financial statements. 13. Intangible13. Goodwill acquired in the purchase of a business.14. Cost of developing a patent.15. Cost of purchasing a patent from an inventor.16. Legal costs incurred in securing a patent.17. Unrecovered costs of a successful legal suit to protect the patent.ItemClassificationResearch and Development Costs14. R & D Expense15. Intangible16. Intangible17. IntangibleLO 9 Describe the accounting for research and development and similar costs.Exercise: Indicate how items on the list below would generally be reported in the financial statements. 18. R & D Expense18. Cost of conceptual formulation of possible product alternatives.19. Cost of purchasing a copyright.20. Research and development costs.21. Cost of developing a trademark.22. Cost of purchasing a trademark.ItemClassificationResearch and Development Costs19. Intangible20. R & D Expense21. Expensed22. IntangibleLO 9 Describe the accounting for research and development and similar costs.Exercise: Indicate how items on the list below would generally be reported in the financial statements. Other Costs Similar to R & D CostsStart-up costs for a new operation.Initial operating losses.Advertising costs.Research and Development CostsLO 9 Describe the accounting for research and development and similar costs. Cost of equipment acquired that will have alternative uses in future R&D projects over the next 5 years. Materials consumed in R&D projects Consulting fees paid to outsiders for R&D projects Personnel costs of persons involved in R&D projects Indirect costs reasonably allocable to R&D projects Materials purchased for future R&D projects$280,00059,000100,000128,00050,00034,000$56,00059,000100,000128,00050,0000R&D Expense$393,000$280,000 / 5 = $56,000 Research and Development CostsExercise: Compute the amount to be reported as research and development expense.LO 9 Describe the accounting for research and development and similar costs.Balance SheetIntangible assets shown as a separate item. Contra accounts normally not shown.Income StatementReport amortization expense and impairment losses in continuing operations. Total R&D costs charged to expense must be disclosed.Presentations of IntangiblesLO 10 Indicate the presentation of intangible assets and related items.Copyright © 2008 John Wiley & Sons, Inc. All rights reserved. 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