9 Intangibles.ppt

1. Accounting for Intangibles There is generally a higher degree of uncertainty regarding the future benefits that may be derived. Their value is subject to wider fluctuations because it may depend to a considerable extent on competitive conditions. They may have value only to a particular company. Goodwill and intangible assets with indefinite lives are not expensed. Classification of Intangibles 1. Purchased Identifiable Intangibles. A company may purchase an intangible asset from another company. The purchase is handled in the same manner as the acquisition of a single asset, in a group of assets, or in an exchange of similar or dissimilar assets. 2. Research and Development Costs Research is the planned search or critical investigation aimed at discovery of new knowledge. Development is the translation of research findings or other knowledge into a plan or design for a new product or process or for a significant improvement to an existing product or process. Materials, equipment, and facilities Personnel Intangibles purchased from others Contract services Indirect costs—RD includes a reasonable allocation of indirect costs. 3. Identifiable Intangible Assets Copyrights Goodwill 6. Conceptual Issues * * 9 Intangibles Accounting School · Zhongnan University of Economics Law ntermediate Accounting I 中级会计学 Intermediate Accounting 9 Intangibles Characteristics that Distinguish Intangibles Purchased Identifiable Capitalize the cost incurred to acquire an intangible assets with a finite life and amortize over its useful life. Unidentifiable (i.e., goodwill) Capitalize the cost incurred to acquire goodwill and review it for impairment at least annually. Intermediate Accounting 9 Intangibles Classification of Intangibles Internally Developed Identifiable Unidentifiable Expense research and development costs as incurred Capitalize certain costs incurred for an intangible asset with a finite life and amortize over its useful life Capitalize cert