Acquisition and Amortization of

Intangible Assets
Noncurrent
Noncurrent assets
assets
without
without physical
physical
substance.
substance.
Useful
Useful life
life is
is
often
often difficult
difficult
to
to determine.
determine.

Intangible
Assets

Often
Often provide
provide
exclusive
exclusive rights
rights
or
or privileges.
privileges.
Usually
Usually acquired
acquired
for
for operational
operational
use.
use.

Record at current cash equivalent cost, including

purchase price, legal fees, and filing fees.
Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Definite
Definite Life
Life

Indefinite
Indefinite Life
Life

Amortize
Amortize over
over shorter
shorter of
of
economic
economic life
life or
or legal
legal life,
life,
subject
subject to
to rules
rules specified
specified
by
by GAAP.
GAAP.
Use
Use straight-line
straight-line method.
method.

Not
Not amortized.
amortized.
Tested
Tested at
at least
least annually
annually for
for
possible
possible impairment,
impairment, and
and
book
book value
value is
is reduced
reduced to
to
fair
fair value
value ifif impaired.
impaired.

Amortization is a cost allocation process

similar to depreciation and depletion.
Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Goodwill
Occurs when one
company buys
another company.

Only purchased
goodwill is an
intangible asset.

The amount by which the purchase price exceeds

the fair market value of net assets acquired.
Goodwill
Goodwill is
is not
not amortized.
amortized. Its
Its value
value must
must be
be reviewed
reviewed
at
at least
least annually
annually for
for possible
possible impairment,
impairment, and
and the
the
book
book value
value is
is reduced
reduced to
to fair
fair value
value ifif impaired.
impaired.
Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Arpec Company paid $2,000,000 to purchase
all of Utek Companys assets and assumed liabilities of $400,000.
The acquired assets were appraised at a fair value of $1,800,000.

What
What amount
amount of
of goodwill
goodwill should
should be
be
recorded
recorded on
on Arpec
Arpec Company
Company books?
books?
a.
a.
b.
b.
c.
c.
d.
d.

$200,000
$200,000
$400,000
$400,000
$600,000
$600,000
$800,000
$800,000

Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Trademarks
Trademarks

Copyrights
Copyrights

AA symbol,
symbol, design,
design, or
or
logo
logo associated
associated with
with
aa business.
business.

The
The exclusive
exclusive right
right to
to
publish,
publish, use,
use, and
and sell
sell aa
literary,
literary, musical,
musical, or
or
artistic
artistic work.
work.

An
An exclusive
exclusive legal
legal right
right
to
to use
use aa name,
name, image
image
or
or slogan.
slogan.
Purchased
Purchased trademarks
trademarks
are
are recorded
recorded at
at cost.
cost.

Legal
Legal life
life is
is life
life of
of
creator
creator plus
plus 70
70 years.
years.
Amortize
Amortize cost
cost over
over the
the
period
period benefited.
benefited.

Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Patents
Patents
Exclusive
Exclusive right
right granted
granted by
by the
the federal
federal government
government to
to sell
sell or
or
manufacture
manufacture an
an invention.
invention.
Cost
Cost is
is purchase
purchase price
price plus
plus legal
legal cost
cost to
to defend.
defend.
Amortize
Amortize cost
cost over
over the
the shorter
shorter of
of useful
useful life
life or
or 20
20 years.
years.
Research
Research and
and development
development costs
costs that
that might
might result
result in
in aa patent
patent
are
are normally
normally expensed
expensed as
as incurred.
incurred.
Technology
Technology
AA category
category of
of intangible
intangible assets
assets that
that includes
includes aa companys
companys
website
website and
and any
any computer
computer programs
programs written
written by
by its
its employees.
employees.

Joaqun Urbarri

Acquisition and Amortization of

Intangible Assets
Franchises
Franchises
Legally
Legally protected
protected right
right
purchased
purchased by
by aa
franchisee
franchisee to
to sell
sell
products
products or
or provide
provide
services
services for
for aa specified
specified
period
period and
and purpose.
purpose.
Purchase
Purchase price
price is
is an
an
intangible
intangible asset
asset that
that is
is
amortized.
amortized.

Licenses
Licenses and
and Operating
Operating
Rights
Rights
Limited
Limited permissions
permissions to
to
use
use aa product
product or
or service
service
according
according to
to specific
specific
terms
terms and
and conditions.
conditions.
You
You may
may be
be using
using
computer
computer software
software that
that
is
is made
made available
available to
to you
you
through
through aa campus
campus
licensing
licensing agreement.
agreement.
Joaqun Urbarri

International PerspectiveIFRS
Measurement Basis for Property, Plant
and Equipment

US GAAP and IFRS differ with respect to the

treatment of development costs.

Under GAAP, all research

and development costs
must be reported as an
expense.

IFRS require that research

expenditures be reported
as an expense, but
development costs be
capitalized as an asset after
technical and commercial
feasibility of the resulting
product or service have
been established.Joaqun Urbarri