Chapter 12-lecture notes
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– Re-evaluation (cost to FMV) – Goodwill (purchase price - FMV)
• E12-12
9
Negative Goodwill – Bargain Purchase
Purchase price less than the fair value of net assets acquired (bargain purchase).
38
q3
When a patent is amortized, the credit is usually made to • a. the Patent account. • b. an Accumulated Amortization account. • c. a Deferred Credit account. • d. an expense account.
• Fair value test
– impairment loss = FMV minus CV (BV)
17
E12-14 (Copyright Impairment) Presented below is information
related to copyrights owned by Walter de la Mare Company at December 31, 2012.
Recoverability test is not used.
22
Goodwill - impairment
• Determine Impairment
– If FMV < BV of net assets (include goodwill)
• Calculate Implied goodwill (new GW)
Chapter 12
Intangible assets
1
Intangible assets
• • • • lack physical existence. not financial instruments Long-term assets Patents, Copyrights, Franchises or licenses, Trademarks or trade names, Goodwill
33
q1
• Costs incurred internally to create intangibles are • a. capitalized. • b. capitalized if they have an indefinite life. • c. expensed as incurred. • d. expensed only if they have a limited life.
Cost Carrying amount Expected future net cash flows Fair value
$ 8,600,000 4,300,000 4,000,000 3,400,000
The copyright has a remaining useful life of 10 years. (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012. (b) Prepare the journal entry to record amortization expense for 2008 related to the copyrights.
4
Types of Intangibles
• Marketing-related
– Trademark, trade name (Indefinite, no amt) Customer list, order backlogs( amt over useful life, 3 yrs) Copyright, music, literature (amt over useful life) Franchise, license, permit (amt over useful life; if indefinite, no amt) Patent (Amt over shorter of legal life or useful life) Capitalize legal fees for successful defense
• No subsequent reversal allowed • E15, P5
23
R & D - Expense
• Materials, equipment, facility, purchased intangibles
– Capitalize if with alternative use
37
q2
Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to • a. patents and amortized over the legal life of the patent. • b. legal fees and amortized over 5 years or less. • c. expenses of the period. • d. patents and amortized over the remaining useful life of the patent.
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.
14
Goodwill Write-off
Goodwill considered to have an indefinite life.
Should not be amortized. Only adjust carrying value when goodwill is impaired.
15
Summary of Impairment Tests
3
Amortization and Impairment
• Limited-Life Intangibles:
– Amortize to expense (amortization)
• Indefinite-Life Intangibles:
– No foreseeable limit. – No amortization but impairment
Expense any R&D costs in developing a patent.
Legal fees incurred successfully defending a patent are capitalized to Patent account.
8
Good Will
• When entire business is purchase • the excess of purchase price over the FMV of net assets
Capitalize acquisition costs.
Amortized to expense over useful life.
7
Patent and Trade secrets
granted by the U.S. Patent and Trademark Office.
Exclusive use for a period of 20 years. Amortize over legal or useful life, whichever is shorter Capitalize costs of purchasing a patent.
• E12-17
26
Computer Software Costs
• Developed to be sold, leased or marketed • Technological feasibility (TF)
– A detailed program design or working model
– FMV - BV (carrying value) of net assets (exclude goodwill, adjust the net assets to fair value if different from BV)
• Compare GW with implied GW
– Difference is impairment loss
18
Impairment of Indefinite-Life Intangibles Other than Goodwill
Should be tested for impairment at least annually.
For example, trademark or trade name 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.
• Personnel, contract services, indirect costs • Other costs similar to R & D
– Start-up costs for a new operation. – Initial operating losses. – Advertising costs.
2
Valuation
• Purchased Intangibles:
– Recorded at cost. – Includes all costs to make it ready for use.
• Internally Created Intangibles:
– Generally expensed. – Only capitalize direct costs, such as legal costs.
• Before TF: R & D expense • After TF: Capitalize
– Amortize greater of
• % of revenue method
– Current/anticipated revenue
• Straight-line method
– E12-19
plays, literary works, musical works, pictures, photographs, and video and audiovisual material. Copyright is granted for the life of the creator plus 70 years.
6
• •
• • •
Customer-related
– – – – –
Artistic-related
Contract-related Technology-related Goodwill (Indefinite, no amt)
Artistic-Related Intangible Assets
16
来自百度文库
Limited life intangible-Impairment
• For example, copyright or patent • Same as PPE • Recoverability test
– Future net cash flow < carrying value (BV)
• E12-12
9
Negative Goodwill – Bargain Purchase
Purchase price less than the fair value of net assets acquired (bargain purchase).
38
q3
When a patent is amortized, the credit is usually made to • a. the Patent account. • b. an Accumulated Amortization account. • c. a Deferred Credit account. • d. an expense account.
• Fair value test
– impairment loss = FMV minus CV (BV)
17
E12-14 (Copyright Impairment) Presented below is information
related to copyrights owned by Walter de la Mare Company at December 31, 2012.
Recoverability test is not used.
22
Goodwill - impairment
• Determine Impairment
– If FMV < BV of net assets (include goodwill)
• Calculate Implied goodwill (new GW)
Chapter 12
Intangible assets
1
Intangible assets
• • • • lack physical existence. not financial instruments Long-term assets Patents, Copyrights, Franchises or licenses, Trademarks or trade names, Goodwill
33
q1
• Costs incurred internally to create intangibles are • a. capitalized. • b. capitalized if they have an indefinite life. • c. expensed as incurred. • d. expensed only if they have a limited life.
Cost Carrying amount Expected future net cash flows Fair value
$ 8,600,000 4,300,000 4,000,000 3,400,000
The copyright has a remaining useful life of 10 years. (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2012. (b) Prepare the journal entry to record amortization expense for 2008 related to the copyrights.
4
Types of Intangibles
• Marketing-related
– Trademark, trade name (Indefinite, no amt) Customer list, order backlogs( amt over useful life, 3 yrs) Copyright, music, literature (amt over useful life) Franchise, license, permit (amt over useful life; if indefinite, no amt) Patent (Amt over shorter of legal life or useful life) Capitalize legal fees for successful defense
• No subsequent reversal allowed • E15, P5
23
R & D - Expense
• Materials, equipment, facility, purchased intangibles
– Capitalize if with alternative use
37
q2
Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to • a. patents and amortized over the legal life of the patent. • b. legal fees and amortized over 5 years or less. • c. expenses of the period. • d. patents and amortized over the remaining useful life of the patent.
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.
14
Goodwill Write-off
Goodwill considered to have an indefinite life.
Should not be amortized. Only adjust carrying value when goodwill is impaired.
15
Summary of Impairment Tests
3
Amortization and Impairment
• Limited-Life Intangibles:
– Amortize to expense (amortization)
• Indefinite-Life Intangibles:
– No foreseeable limit. – No amortization but impairment
Expense any R&D costs in developing a patent.
Legal fees incurred successfully defending a patent are capitalized to Patent account.
8
Good Will
• When entire business is purchase • the excess of purchase price over the FMV of net assets
Capitalize acquisition costs.
Amortized to expense over useful life.
7
Patent and Trade secrets
granted by the U.S. Patent and Trademark Office.
Exclusive use for a period of 20 years. Amortize over legal or useful life, whichever is shorter Capitalize costs of purchasing a patent.
• E12-17
26
Computer Software Costs
• Developed to be sold, leased or marketed • Technological feasibility (TF)
– A detailed program design or working model
– FMV - BV (carrying value) of net assets (exclude goodwill, adjust the net assets to fair value if different from BV)
• Compare GW with implied GW
– Difference is impairment loss
18
Impairment of Indefinite-Life Intangibles Other than Goodwill
Should be tested for impairment at least annually.
For example, trademark or trade name 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.
• Personnel, contract services, indirect costs • Other costs similar to R & D
– Start-up costs for a new operation. – Initial operating losses. – Advertising costs.
2
Valuation
• Purchased Intangibles:
– Recorded at cost. – Includes all costs to make it ready for use.
• Internally Created Intangibles:
– Generally expensed. – Only capitalize direct costs, such as legal costs.
• Before TF: R & D expense • After TF: Capitalize
– Amortize greater of
• % of revenue method
– Current/anticipated revenue
• Straight-line method
– E12-19
plays, literary works, musical works, pictures, photographs, and video and audiovisual material. Copyright is granted for the life of the creator plus 70 years.
6
• •
• • •
Customer-related
– – – – –
Artistic-related
Contract-related Technology-related Goodwill (Indefinite, no amt)
Artistic-Related Intangible Assets
16
来自百度文库
Limited life intangible-Impairment
• For example, copyright or patent • Same as PPE • Recoverability test
– Future net cash flow < carrying value (BV)