1. Intangible Assets: Purchased –Patents, franchise, trademarks, copyrights, goodwill Self developed –Patents, trademarks, copyrights, software

2. Purchased Intangible Assets: Record at cost If no limited useful life (e.g., trademark, goodwill) –Maintain original cost –Evaluate periodically for impairment If impairment determined – write down

3. Problem 12 – 5 (b) Goodwill on 12/31/2003 should be A.$350,000 B.$200,000 C.$150,000 D.$ 50,000

4. Problem 12 – 5 (c) Goodwill on 12/31/2003 should be A.$350,000 B.$200,000 C.$150,000 D.$ 50,000

5. Purchased Intangible Assets: Record at cost If limited useful or legal life (patents, copyrights, e.g.) –Amortize, straight line, generally time based –Amortize over shorter of useful or legal life

6. Exercise 12 -9: The patent should be reported on the 2004 Balance sheet at A.$ 2,000,000 B.$ 1,600,000 C.$ 1,440,000 D.$1,200,000

7. Exercise 12 -9: The franchise should be reported on the 2004 Balance sheet at A.$ 480,000 B.$ 432,000 C.$ 400,000 D.$380,000

8. Exercise 12 -17: Research and development expense for 2003 is A.$ 337,000 B.$ 427,000 C.$ 393,000 D.$ 707,000

9. Internally developed Intangibles Generally all costs expensed as R&D or other expenses (advertising, salaries, etc.) Exceptions: –Legal fees (register patent, defend patent) –Some costs for software developed for third party use

10. Software Developed for Third Party Use (FAS 86) Until technological feasibility is established all costs are expensed to R&D Once technological feasibility is established, costs are capitalized and subsequently amortized

11. Exercise 12-19 Determine the amount at which the software should be reported on the balance sheet at December 31, 2004

12. Software Developed for Third Party Use (FAS 86) Amortization: Straight Line Either over time OR Proportionate to expected revenue, whichever is greater.

13. Software Developed for Third Party Use (FAS 86) Example: Capitalized cost: $300,000 Expected life 3 years Expected revenue$1,000,000 Year 1 revenue earned: 400,000 Amortization (years)$100,000 Revenue based: 400/1000 * 300 = $120 $120 > $100, Amortization: $120,000

14. Software Developed for Third Party Use (FAS 86) Software developed for external use must be reported at the lower of amortized cost or net realizable value. Once written down, may NOT be written up again.