中级财务会计英文ch07.ppt

Intangible assets are those noncurrent economic resources that are used in the operations of the business but have no physical existence.PatentsCopyrightsFranchisesIntangible assets are those noncurrent economic resources that are used in the operations of the business but have no physical existence.Trademarks a registered trademarkComputer software costsGoodwillIntangibleAssetsLack physicalsubstance.Economic benefitslast beyond thecurrent period.Useful life isoften difficultto determine.Usually acquired for operational use. PatentPendingAt acquisition:record at .During use:use the to allocate cost to expense.At disposition:use the principle to record any gain or loss that might result. Factors to consider when estimating the useful life of an intangible asset:Factors to consider when estimating the useful life of an intangible asset:Intangible Assets With a Finite Life Are Amortized.The calculation of the amortization of intangible assets follows the same principles as the depreciation of tangible assets.Amortization systematically and rationally allocates the acquisition cost of intangible assets to expense.CostAllocationAcquisitionCostExpenseA company purchases a patent for $85,000.Patent85,000 Cash85,000At year-end the patent is amortized over 10 years (no expected residual value).Amortization Expense (or Factory Overhead)8,500 Patent (or Accumulated Amortization: Patent)8,500Batter-Ups cost for the newpatent is $3,000. Use the shorter of useful life or legal life; 5 years.Amortization = Cost Est. Useful Life = $3,000 5 years = $600GENERAL JOURNALPage:15DateDescriptionPRDebitCreditAmortization Expense 600 Device Patent 600 to record patent amortizationfor the periodWhat amount of goodwill should be recorded on Eddy Company books?a. $100,000b. $200,000c. $300,000d. $400,000What amount of goodwill should be recorded on Eddy Company books?a. $100,000b. $200,000c. $300,000d. $400,000FMV of Assets900,000$ Debt Assumed200,000 FMV of Net Assets700,000$ Purchase Price1,000,000 Goodwill300,000$ Sara Company purchases all the assets of Trevor Company for $790,000 cash and Trevor Company is dissolved. Trevor Companys identifiable assets had a fair value of $920,000 and its liabilities totaled $200,000.Assets920,000Goodwill70,000 Liabilities200,000 Cash790,000Impairment TestsRecoverability test,then fair value testRecoverability test, then fair value testFair value testFair value test on reporting unit, then fair value test on implied goodwillSum of expected future net cash flowsfrom use and disposal of asset is less thanthe carrying amountSum of expected future net cash flowsfrom use and disposal of asset is equal to or more than the carrying amountImpairment has occurredNo impairmentImpairment has occurredLoss =Carrying amountlessFair value of assetDoes an active marketexist for the asset?Determine impairment lossYes No Loss =Carrying amountlesspresent value ofexpected net cashflowsUse companys marketrate of interest Loss = Carrying value less Fair value Amortize new cost basis Restoration of impairment loss is NOT permitted Compares fair value of intangible asset with assets carrying amount. If fair value less than carrying amount, impairment recognized. The fair value of the reporting unit should be compared to its carrying amount including goodwill. The fair value of the goodwill must be determined and compared to its carrying amount.The Kent Company acquired the Devon Company as a subsidiary several years ago. The Devon Company has a book value of $3.6 million, including goodwill of $400,000. Kent now Company estimates that its fair value is $3 million. If Kent Company allocates $2.7 million of the fair market value to Devon Companys identifiable assets and liabilities, this means that $300,000 is implied for goodwill. Thus, there has been an impairment loss of $100,000.Impairment Loss on Goodwill 100,000Goodwill100,000Book Value Fair ValueNet Assets$3,200,000$2,700,000Goodwill400,000300,000Total$3,600,000$3,000,000Batter-Ups cost for the new patent is $3,000. The $30,000 R & D cost is expensed as incurred.