COPYRIGHT
- An exclusive right granted by the
government to the author, composer or
artist enabling the grantee to publish, sell or
otherwise benefit from the literary, musical
or artistic work
- The cost assigned to copyright consists of
ALL EXPENSES incurred in the production
of the work.
- If PURCHASED, the cost includes the cash
paid plus directly attributable cost
Amortization of Copyright
- THEORETICALLY, the cost of copyright
shall be AMORTIZED over the useful life
- USEFUL LIFE is the period in which
benefits, sales and royalties are expected
- IN PRACTICE, it is often difficult to estimate
the number of years so it is advisable to
WRITE OFF the cost of copyright against
the REVENUE OF THE FIRST PRINTING.
*Under the INTELLECTUAL PROPERTY CODE
OF PHIL, the term of protection of copyright is
during the life of the author and 50yrs after death.
FRANCHISE
FRANCHISOR grants certain rights to another
party called FRANCHISEE
- Under the US GAAP, a franchise is a
contract-based intangible asset. The
franchise agreement may be:
a) BETWEEN GOVERNMENT AND
PRIVATE ENTITY
- The private entity is permitted to use public
property in performing services
(use of streets and highways for bus line,
use of public land for telephone and
electrical lines)
b) BETWEEN PRIVATE ENTITIES
- The FRANCHISEE acquires the right to use
the TRADEMARK, PATENT AND
PROCESS of the FRANCHISOR
(Right to operate a fried chicken drive-in
under the trade name “MAX”)
Franchise Cost
- LUMP SUN PAYMENT (INITIAL
FRANCHISE FEE) for the acquisition PLUS
DIRECTLY ATTRIBUTABLE COSTS (legal
fees and expenses)
- IF the agreement requires periodic
payment, such payment is considered as
OUTRIGHT EXPENSE and is also known
as PERIODIC FRANCHISE FEE.
Amortization of Franchise
- If granted for a DEFINITE PERIOD, the cost
shall be amortized over the useful life or
definite period, whichever is SHORTER. It is
tested for impairment at the end of reporting
period.
- If granted INDEFINITELY OR
PERPETUALLY, the cost shall NOT BE
AMORTIZED but tested for IMPAIRMENT
at least annually.
Example: Periodic Franchise Fee
Franchisee pays the franchisor a periodic fee of 5%
on the gross sales of franchisee per year
Franchisee realized gross sales of 5M for the
current year
Franchisee fee expense (5Mx5%) 250K
Cash 250K
Initial Franchise Fee
At the beginning of current year, an entity
purchased a franchise from Jollibee Company for
5M (20years)
The initial franchise fee is payable in cash 500K
and the balance in five equal installments evidence
by a 12% promissory note.
Book of FRANCHISEE
1.) INITIAL FRANCHISE FEE
Franchise 5M
Cash 500K
Notes Payable 4.5M
2.) first Installment
NP (4.5M/5) 900K
Interest expense(4.5Mx12%) 540K
Cash 1,440K
3.) Amortization of Franchise
Amortization of Franchise 250K
Franchise (5M/20) 250k
LEASE RIGHT
 - A lessee is required to initially recognized
a RIGHT OF USE ASSET for the lease term
and a LEASE LIABILITY for the obligation to
make lease payments
LEASEHOLD IMPROVEMENT
- Alteration or modification on leased property
made by the lessee.
- NOT INCLUDED in the cost of right of use
asset but accounted separately
- Examples :building, walk, pavement,
landscaping, driveway
- Classified under PPE of the lessee
- Depreciated over the lease term or useful
life of the improvement, WHICHEVER IS
SHORTER
- The RESIDUAL VALUE shall be IGNORED
in computing depreciation.
BROADCASTING LICENSE WITH INDEFINITE
USEFUL LIFE
- Should not be amortized but tested for
impairment annually.
BROADCASTING LICENSE WITH FINITE
USEFUL LIFE
- Should be amortized over the remaining
useful life and immediately tested for
impairment
AIRLINE RIGHT
- If it has an indefinite useful life, the airline
right should not be amortized but tested for
impairment annually.
CUSTOMER LIST
- Customer database containing the name,
contract information, order history and other
vital and social statistics, such as birth,
death and even sickness.
- INTERNALLY GENERATED CUSTOMER
LIST SHALL NOT BE RECOGNIZED AS
AN INTANGIBLE ASSET.
- ACQUIRED customer list may be
RECOGNIZED as INTANGIBLE ASSET
and amortized over the useful life
ORGANIZATION COST
- Represent cost incurred in forming or
organizing a corporation
- Organization cost shall be EXPENSED
immediately.
WEB SITE DEVELOPMENT COST
- DOES NOT MEET the requirement to be
recognized as an INTANGIBLE ASSET.
- SHALL BE EXPENSE AS INCURRED
CHAPTER 38- RESEARCH AND DEVELOPMENT
COST
Research is original and planned investigation
undertaken with the prospect of gaining scientific or
technical knowledge and understanding.
Example: Laboratory research aimed at obtaining
or discovering new knowledge
Accounting for Research Cost
- Shall be EXPENSE when INCURRED
DEVELOPMENT is the application of research
findings or other knowledge to a plan or design for
the production of new or substantially improved
material, device, product, process, system or
service, prior to the commencement of commercial
production.
Example: design, construction, and testing of
preproduction prototype and model.
Accounting for Development cost
- Development cost may or may not be
recognized as an intangible asset
depending on VERY STRICT CRITERIA
CRITERIA FOR RECOGNITION (development cost
may qualify as intangible asset if it can
DEMONSTRATE ALL of the ff:)
a) Technical feasibility of completing the
intangible asset
b) Intention to complete the intangible asset
and use or sell it
c) Ability to use or sell the intangible asset
d) Generate probable future economic
benefits
 e) Availability of resources or funding to
complete development
f) Ability to measure reliably the expenditure
attributable to the intangible asset during
the development
AMERICAN STANDARD
- Expenditures for research and development
which have ALTERNATIVE FUTURE USE,
either in additional research project or for
productive purposes CAN BE
CAPITALIZED
*ACTIVITIES THAT RELATE TO COMMERCIAL
PRODUCTION DO NOT RESULT TO RESEARCH
AND DEVELOPMENT.
CLASSIFICATION OF COMPUTER
SOFTWARE
a) As a rule, computer software is
classified as an INTANGIBLE ASSET
b) If purchased for resale it shall be
treated as INVENTORY
c) If purchased as an INTEGRAL PART of
a computer controlled machine tool that
CANNOT OPERATE without the
specific software shall be treated as
PPE.
*if it is NOT AN INTEGRAL PART, it is
classified as INTANGIBLE ASSET.S

INTERNALLY DEVELOPED COMPUTER

SOFTWARE

- Costs incurred in creating a computer

software product shall be charged to
EXPENSE
- IF TECHNOLOGICAL FEASIBILITY IS
ESTABLISHED, costs incurred should be
capitalized which includes THE COST OF
CODING AND TESTING AND THE COST
TO PRODUCE THE PRODUCT MASTERS

Amortization of computer software

- Shall reflect the pattern in which the future

economic benefits are expected to be
consumed by the entity
- If such pattern cannot be determined
reliably, THE STRAIGHT LINE METHOD IS
USED

Impairment of Computer Software

- Cost is amortized at the end of reporting

period over the useful life
- Tested for impairment whenever there is an
indication of impairment at the end of
reporting period.