intermediate accounting Chapter 12.pptVIP

LEARNING OBJECTIVES 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 accounting issues for recording goodwill. Illustration: Lerch, Inc. has a patent on how to extract oil from shale rock. Unfortunately, several recent non-shale oil discoveries adversely affected the demand for shale-oil technology. As a result, Lerch performs a recoverability test. It finds that the expected future net cash flows from this patent are $35 million. Lerch’s patent has a carrying amount of $60 million. Discounting the expected future net cash flows at its market rate of interest, Lerch determines the fair value of its patent to be $20 million. Perform the recoverability test. LO 6 Explain the accounting issues related to intangible-asset impairments. IMPAIRMENT OF INTANGIBLE ASSETS Expected future net cash flows $ 35,000,000 Carrying value 60,000,000 Asset impaired $ (25,000,000) Illustration: Perform the fair value test and the journal entry (if any) to record the impairment of the asset. LO 6 Explain the accounting issues related to intangible-asset impairments. IMPAIRMENT OF INTANGIBLE ASSETS Carrying amount of patent $ 60,000,000 Fair value 20,000,000 Loss on impairment $ 40,000,000 Loss on impairment 40,000,000 Patents 40,000,000 Companies may not recognize restoration of the previously recognized impairment loss. Impairment of Indefinite-Life Intangibles Other than Goodwill LO 6 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. IMPAIRMENT OF INTANGIBLE ASSETS ILLUSTRATION 12-7 Illustration: Arcon Radio purchased a b