Intangibles Flashcards

1
Q

How are Research and Development costs recorded?

A

They are expensed in the period incurred and are not capitalized.

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2
Q

The legal protection of product and process ideas resulting from research and development is known as what?

A

Patent

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3
Q

How are legal fees to defend a patent amortized?

A

If the patent is SUCCESSFULLY defended, the legal fees are amortized over the patent’s economic life.

If unsuccessful, they are expensed immediately.

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4
Q

How long does a patent last?

A

Maximum 20 year life, but use shorter of useful or legal life.

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5
Q

The legal protection of artistic works is known as what?

A

Copyright

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6
Q

How long does a copyright last?

A

The life of the creator plus 70 years (or 95 years total for works made for hire), but the costs should be amortized over their useful life.

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7
Q

The exclusive use of an identifying name for a product or process is known as what?

A

Trademark

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8
Q

How long does a trademark last?

A

Indefinite renewals of 10 year periods

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9
Q

The operation of a business unit under contractual arrangements with another party is known as what?

A

Franchise

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10
Q

Which intangible assets are subject to amortization?

A

Those with finite useful lives (such as patents, copyrights, and franchises).

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11
Q

Are intangible assets with infinite useful lives subject to amortization?

A

No, as their infinite useful life makes amortization any calculation impossible.

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12
Q

What methods of amortization are used for intangible assets?

A

Straight-line, units of sales (sales to date over estimated sales), and net realizable value (carrying value relative to remaining future benefits)

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13
Q

Intangible assets are tested for impairment at what frequency?

A

Those with infinite useful lives are tested at least annually. Those with finite useful lives are tested less frequently.

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14
Q

How are most intangible assets tested for impairment?

A

Two steps:

1) Compare the carrying value to the undiscounted present value of cash flows of the asset.
2) If greater, then compare the carrying value to the fair value. Any excess of carrying value over fair value is the impairment loss amount.

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15
Q

What factors might cause intangible assets to become impaired?

A

Poor firm financial performance, adverse changes in the associated legal and regulatory environment, changes in management and/or personnel, potential litigation, industry and market changes (new subsitute products), and macroeconomic factors (access to capital, interest rates, FX rates, etc.)

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16
Q

What are the two steps for testing goodwill impairment?

A

1) Compare the carrying value of goodwill to its fair value. If CV is greater than FV, impairment exists.
2) The net assets (assets - liabilities) should then be compared to the fair value of the reporting unit. The difference is Goodwill and it should be compared to the CV of Goodwill and written down accordingly.

17
Q

Are previously recognized impairment losses subject to reversals or recovery?

A

No

18
Q

How are costs for restoring or maintaining goodwill treated?

A

Expensed as incurred.

19
Q

At what organizational level should goodwill be tested periodically for impairment?

A

At the operating segment level or one level below

20
Q

How are costs for developing software recorded?

A

Expenses prior to technological feasibility are expensed as R&D.

After technological feasibility, but prior to production costs are capitalized.

Expenses incurred during production are charged to inventory.

Expenses incurred training on internal use software are expensed.

21
Q

For nonpublic entities electing the alternative accounting approach, is goodwill amortizable?

A

Yes

22
Q

For nonpublic entities electing the alternative accounting approach, what amortization method is used for goodwill? For how long?

A

Straight-line over useful life (not to exceed 10 years)

23
Q

For nonpublic entities electing the alternative accounting approach, what is the process for recording goodwill impairment?

A

Compare fair value of the entity to its carrying value, if carrying value is greater the difference is attributed to goodwill and impairment loss.

24
Q

At what point do costs stop being R&D expenses?

A

Once technological feasibility is reached

25
Q

What happens to costs upon reaching technological feasibility?

A

Costs can now be capitalized as a part of the software costs (amortizable) or part of production costs.

26
Q

How is software amortized?

A

Larger of straight-line (usually 5 years) or ratio of annual revenues to total expected revenues

27
Q

What is an accrued revenue?

A

A revenue that has been earned, but payment has yet to be received.

28
Q

What is an accrued expense?

A

An expense that has been incurred, but hasn’t been paid.

29
Q

What is a deferred revenue?

A

Cash funds paid/received in advance of providing a good/service (money hasn’t been earned yet).

30
Q

What is a deferred expense?

A

Cash funds paid in advance of receiving a good/service (it’s a prepaid asset until fulfilled)

31
Q

What is a Patent?

A

The legal protection of product and process ideas resulting from research and development

32
Q

What is a Copyright?

A

The legal protection of artistic works

33
Q

What is a Trademark?

A

The exclusive use of an identifying name for a product or process

34
Q

What is a Franchise?

A

The operation of a business unit under contractual arrangements with another party