32 Questions
Which of the following is an example of an intangible asset related to marketing?
Trademark
How are purchased intangibles typically classified?
Long-term assets
What is the primary method of recording goodwill?
Impairment testing
How are research and development costs typically presented?
As operating expenses
How would the cost of developing a patent be generally reported in the financial statements?
R&D expense
What would the legal costs incurred in securing a patent generally be classified as in the financial statements?
Intangible
How would the materials consumed in R&D projects generally be categorized in the financial statements?
R&D expense
What would the total R&D expense of $280,000 be after allocating indirect costs reasonably to R&D projects?
$393,000
Which intangible assets are amortized over their useful life?
Customer-related intangible assets
Which intangible assets are renewed every 10 years with no amortization?
Marketing-related intangible assets
Which intangible assets are recorded in business combinations?
Goodwill
Which intangible assets include patented technology?
Technology-related intangible assets
Which intangible assets are tested for impairment annually?
Indefinite-life intangibles
Which intangible assets are amortized over the life of the franchise?
Contract-related intangible assets
Which intangible assets are capitalized, including purchase price and legal fees?
Limited-life intangibles
Which intangible assets are required to have some development costs capitalized under IFRS?
Technology-related intangible assets
Which intangible assets represent future economic benefits from acquired assets?
Goodwill
Which intangible assets are included in the six major categories of intangible assets?
Patents
Which intangible assets are the excess of purchase cost over the fair value of identifiable net assets acquired?
Goodwill
Which intangible assets are not amortized?
Marketing-related intangible assets
Which of the following best describes the accounting treatment of goodwill?
Goodwill is considered to have an indefinite life and should not be amortized
In the context of business acquisitions, when does a bargain purchase occur?
When the purchase price is less than the fair value of net assets
How is impairment of indefinite-life intangibles and goodwill typically assessed?
Through specific impairment tests
What happens when the purchase price of a business acquisition is less than the fair value of net assets?
A bargain purchase occurs
How are research and development (R&D) costs treated in the context of intangible assets?
R&D costs are not considered intangible assets
What is the accounting treatment of impairment of limited-life intangibles?
Follows specific impairment tests
When does an impairment of goodwill occur?
When the carrying amount of goodwill exceeds its implied fair value
How is reporting of intangible assets and goodwill impairment losses explained?
In detail with specific examples
What is the treatment of purchase costs and legal fees associated with business acquisitions?
Included in the recorded journal entry based on fair market value
How are identifiable net assets, purchase price, and goodwill recorded in the journal entry for an acquisition?
Based on fair market value
What is the treatment of research and development (R&D) costs in the financial statements?
Expense as incurred
How are impairment losses of limited-life intangibles typically accounted for?
Recognized as expenses when impaired
Study Notes
Intangible Assets Accounting Overview
- Intangible assets include patents, copyrights, trademarks, goodwill, and more.
- Costs to make intangible assets ready for use are capitalized, including purchase price and legal fees.
- Limited-life intangibles are amortized over useful life, while indefinite-life intangibles are tested for impairment annually.
- IFRS requires capitalization of some development costs for intangibles.
- Six major categories of intangible assets include marketing-related, customer-related, artistic-related, contract-related, technology-related, and goodwill.
- Marketing-related intangible assets can include trademarks and trade names, and are renewed every 10 years with no amortization.
- Customer-related intangible assets, like customer lists, are amortized over their useful life.
- Artistic-related intangible assets, such as plays and literary works, are amortized over useful life.
- Contract-related intangible assets, like franchise agreements, are amortized over the life of the franchise.
- Technology-related intangible assets, such as patented technology, are amortized over the patent's useful life.
- Goodwill represents future economic benefits from acquired assets and is recorded in business combinations.
- Goodwill is the excess of purchase cost over the fair value of identifiable net assets acquired.
Accounting for Business Acquisitions and Impairment
- Local Company's balance sheet just before acquisition showed assets and liabilities.
- Global recorded journal entry for the acquisition based on fair market value of net assets.
- The journal entry included identifiable net assets, purchase price, and goodwill.
- Goodwill is considered to have an indefinite life and should not be amortized.
- Bargain purchase occurs when the purchase price is less than the fair value of net assets.
- Impairment of limited-life intangibles follows specific tests and accounting treatment.
- Impairment of indefinite-life intangibles and goodwill has specific impairment tests.
- A specific example of impairment of goodwill is provided for illustration.
- Reporting of intangible assets and goodwill impairment losses is explained.
- Research and development (R&D) costs are not considered intangible assets.
- The text explains the accounting treatment of various costs associated with R&D activities.
- An exercise on identifying R&D activities and their financial statement classification is provided.
Test your knowledge of intangible assets accounting with this overview quiz. Explore the capitalization and amortization of intangible assets, IFRS requirements, and the six major categories of intangible assets.
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