Chapter 12 Intangible Assets.ppt

Intermediate Accounting, 10th Edition, Ch. 12 (Kieso et al.) Intangibles: Characteristics They lack physical existence They represent entity’s rights and privileges They are not financial instruments, such as deposits or bank accounts They are long term in nature They are subject to amortization Examples are: patents and copyrights Classification of Intangibles Intangibles are either grouped or separately identified based on the following factors: Are the assets developed internally, or acquired singly or in groups? Is the expected benefit from the asset limited or indefinite? Are the rights transferable or are they a substantial part of the business? Valuation of Intangible Assets Amortization of Intangible Assets Intangibles are written off over their useful lives, where the assets have determinable useful lives Where the intangibles have indeterminable useful lives, they must be written off over a period not exceeding 40 years Acquired intangibles should not be written off at acquisition Intangibles are amortized on a straight-line basis for tax purposes Specific Intangibles: Types Patents (product patents and process patents) Copyrights (relating to creations of authors, painters, musicians and artists) Trademarks and Trade Names Leaseholds (Lease Prepayments, Leasehold Improvements and Capital Leases) Franchises and Licenses Patents (product patents and process patents) A patent gives an exclusive right to the holder for 20 years. Costs of purchasing patents are capitalized Costs to research and develop patents are expensed as incurred Patents are amortized over the shorter of the legal life (20 years) or their useful lives Legal fees incurred to defend patents are capitalized. Copyrights Copyrights are granted for life of the creator plus 50 years Copyrights can be sold or assigned, but can not be renewed Copyrights are amortized over their useful life (not to exceed 40 years) Costs of acquiring