1. Intangible Assets IAS 38 20151

2. Two Main Characteristics : Characteristics (1) Lack of physical existence. (2)They are not financial instruments. Normally classified as long-term asset. Common types of intangibles: Patents Copyrights Franchises or licenses Trademarks or trade names Goodwill Intangible Assets Issues 2 2015

3. Purchased Intangibles: Recorded at cost. If purchased in exchange of stock, the fair value of the consideration given or received which is evident, should be recognized. Includes all costs necessary to make the intangible asset ready for its intended use. Intangible Assets Issues 3 2015 Internally Created Intangibles: Expense as incurred Only capitalize direct costs incurred in developing the intangible, such as legal costs.

4. Intangible Assets Issues Determine The Useful Life Expected Use Useful Life of relative assets Legal Regulatory Conceptual Framework Limiting useful life Law supporting renewal or extension Effect of obsolesce, demand, competition. Level of Maintenance cost 4 2015

5. Amortization of Intangibles Limited-Life Intangibles: Amortize to (Cost Less Residual Value) Assume zero Residual value unless it has value to another company after its useful life Reflect the pattern in which the company consumes the asset (if Determined) Credit asset account or accumulated amortization. Intangible Assets Issues Indefinite-Life Intangibles: No foreseeable limit on time the asset is expected to provide cash flows. No amortization. 5 2015

6. Accounting Treatment for Intangibles Intangible Assets Issues 6 2015

7. Six Major Categories: 1)Marketing-related. 2)Customer-related. 3)Artistic-related. 4)Contract-related. 5)Technology-related. 6)Goodwill. Types of Intangibles 7 2015

8. Marketing-Related Intangible Assets Examples 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 Intangibles 8 2015

9. Customer-Related Intangible Assets Examples are:  customer lists, order or production backlogs, and both contractual and non contractual customer relationships. Capitalize acquisition costs. Amortized to expense over useful life. Types of Intangibles 9 2015

10. Artistic-Related Intangible Assets Examples 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 costs of acquiring and defending a copyright. Amortized to expense over useful life or legal life(Whichever is shorter) Types of Intangibles 10 2015

11. Contract-Related Intangible Assets Examples 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 Intangibles 11 2015

12. Technology-Related Intangible Assets Examples 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 Intangibles 12 2015

13. Goodwill  Created by good relationships by building up a reputation.  A going concern valuation.  Measured at the time of business to be sold.  The excess or residual amount of the cost over the fair value of the identifiable net assets purchased.  The most intangible of the intangible assets.  Can not be amortized; can only be impaired.  Internally created goodwill should not be capitalized. 13 2015 Types of Intangibles