FAR04-06 - Intangible Assets

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
Intangible Assets
INTANGIBLE ASSETS
An intangible asset is an identifiable non-monetary asset without physical substance (IAS 38, par. 8). To
qualify as intangible asset, an item must meet all of the following essential criteria:
• Identifiability
• Control
• Future economic benefits
Identifiability
 An intangible asset must be identifiable to distinguish it from goodwill. An asset is considered
identifiable when:
(1) It is separable.
(2) It arises from contractual or other legal rights.
Control
 An entity controls an asset if the entity has the power to obtain the future economic benefits flowing
from the underlying resource and to restrict the access of others to those benefits.
 Control over an asset normally stem from legal or contractual rights that are enforceable by
law.
Future economic benefits

 The future economic benefits flowing from an intangible asset may include revenue from the sale of
products or services, cost savings, or other benefits resulting from the use of the asset by the entity.
INITIAL RECOGNITION
An intangible asset shall be recognized if:
(a) It is probable that the expected future economic benefits that are attributable to the asset will flow to
the entity; and
(b) The cost of the asset can be measured reliably.
MEASUREMENT
Initial measurement
 An intangible asset shall be measured initially at cost (IAS 38, par. 24). The cost of an intangible asset
generally consists of:
1. Purchase price (or fair value), and
2. Any directly attributable cost of preparing the asset for its intended use.
Modes of Acquisition:
1. Separate acquisition
 The cost of a separately-acquired intangible comprises:
(a) Its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates; and
(b) any directly attributable cost of preparing the asset for its intended use
Directly attributable costs include the following:

 Costs of employee benefits arising directly from bringing the asset to its working condition.
 Professional fees arising directly from bringing the asset to its working condition.
 Costs of testing whether the asset is functioning properly.
Costs which are not capitalizable and should be expensed immediately are the following:
 Costs of introducing a new product or service, including costs of advertising and promotional activities.
 Costs of conducting business in a new location or with a new class of customer, including costs of staff
training.
 Administration and other general overhead costs.
 Costs incurred while an asset is already capable of operating in a manner intended by management
has yet to be brought into use.
 Initial operating loss
1|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Note: Recognition of costs in the carrying amount of an intangible asset ceases when the asset is in the
condition necessary for it to be capable of operating in the manner intended by management.
2. Deferred basis
 If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price
equivalent. The difference between this amount and the total payments is recognized as interest
expense over the credit period.
3. Acquisition as part of business combination

 The cost of the intangible asset acquired in a business combination is equal to its fair value on
the date of acquisition.
4. Government grant
 The entity may choose to recognize both the intangible asset and the grant initially at:
(1) Fair value, or
(2) Nominal amount plus any expenditures that is directly attributable to preparing the asset for its
intended use.
5. Exchange
 With commercial substance
Fair value of asset given up XX
Cash payment XX
Cash received (XX)
Cost XX
 Without commercial substance

Carrying value of asset given up XX
Cash payment XX
Cash received (XX)
Cost XX
Note: The initial measurement principles of intangible assets is very similar as that of the property, plant and
equipment.
INTERNALLY-GENERATED INTANGIBLE ASSET

 The cost of an internally-generated intangible asset comprises all directly attributable costs necessary
to create, produce and prepare the asset to be capable of operating it in the manner intended by the
management.
Examples of directly attributable costs are:

 Costs of materials and services used or consumed in generating the intangible asset.
 Costs of employee benefits arising from the generation of the intangible asset.
 Fees to register a legal right.
 Amortization of patents and licenses that are used to generate the intangible asset.
The following do not form part of the cost of an internally-generated intangible asset and should be expensed
immediately:
 Selling, administrative and other general overhead, unless these expenditures can be directly
attributed to preparing the asset for use.
 Inefficiencies and initial operating losses incurred before an asset achieves planned performance.
 Expenditure on training staff to operate the asset.
To assess whether an internally generated intangible asset meets the criteria for recognition, an entity shall
classify the generation of the asset into:
(a) Research phase; and
(b) Development phase
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Telephone : (043) 723 8412
Research
Research refers to the original and planned investigation undertaken with the prospect of gaining new
scientific or technical knowledge and understanding.
Examples of research activities:

(a) Activities aimed at obtaining new knowledge;
(b) The search for, evaluation and final selection of, applications of research findings or other knowledge;
(c) The search for alternatives for materials, devices, products, processes, systems or services; and
(d) The formulation, design, evaluation and final selection of possible alternatives for new or improved
materials, devices, products, processes, systems or services.
Accounting for research costs

 All research costs or costs incurred in the research phase shall be recognized as expense.
Development
Development refers to the application of research findings or other knowledge to a plan or design for the
production of new or substantially improved materials, devices, products, processes, systems or services
before the start of commercial production or use.
Examples of development activities:

(a) The design, construction and testing of pre-production or pre-use prototypes and models;
(b) The design of tools, jigs, molds and dies involving new technology;
(c) The design, construction and operation of a pilot plant that is not of a scale economically feasible for
commercial production; and
(d) The design, construction and testing of a chosen alternative for new or improved materials, devices,
products, processes, systems or services.
Accounting for development costs

 An intangible asset arising from development (or from the development phase of an internal project)
shall be recognized if, and only if, an entity can demonstrate all of the following:
(a) The technical feasibility of completing the intangible asset so that it will be available for use or sale.
(b) Its intention to complete the intangible asset and use or sell it.
(c) Its ability to use or sell the intangible asset.
(d) How the intangible asset will generate probable future economic benefits. Among other things, the
entity can demonstrate the existence of a market for the output of the intangible asset or the
intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.
(e) The availability of adequate technical, financial and other resources to complete the development
and to use or sell the intangible asset.
(f) Its ability to measure reliably the expenditure attributable to the intangible asset during its
development.
Otherwise, the development costs shall be recognized as an expense.
Note:
 If an entity cannot distinguish the research phase of an internal project to create an intangible asset
from the development phase, the entity treats the expenditure for that project as if it were incurred in
the research phase.
 Expenditures for research and development (R&D) which have alternative future use can be
capitalized.
Activities not considered research and development

 Research and development activities occur prior to the beginning of commercial production and
distribution. Accordingly, activities that relate to commercial production are not considered research
and development activities.
Examples:
(a) Engineering follow through in an early phase of commercial production.
(b) Quality control during commercial production including routine testing.
(c) Trouble shooting breakdown during production.
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Telephone : (043) 723 8412
(d) Routine on-going effort to refine, enrich or improve quality of an existing product.
(e) Adaptation of an existing capability to a particular requirement or customer need.
(f) Periodic design changes to existing products.
(g) Routine design of tools, jigs, molds and dies.
Note: Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance
shall not be recognized as intangible assets (IAS 38 par. 63)
SUBSEQUENT MEASUREMENT
After initial recognition, an entity chooses either the cost model or the revaluation model as its accounting
policy and applies that policy to an entire class of intangible assets.
 Under the cost model, the intangible asset is carried at cost less accumulated amortization and
accumulated impairment losses.
 Under the revaluation model, the intangible asset is carried at revalued amount, being the fair value
at the date of revaluation, less accumulated amortization and impairment losses.
Useful life
An entity shall assess whether the intangible asset has:
a. Finite useful life; or
b. Indefinite useful life
Only intangible assets with finite useful life are amortized. Intangible asset with indefinite useful life are not
amortized but tested for impairment at least annually.
An intangible asset with finite useful life is amortized over the period of expected economic benefits, that is,
the shorter between the period of its legal or contractual rights and the period over which the entity expects to
use the asset. In some cases, the amortization period may be beyond the legal life of the intangible asset if
the legal right is renewable and renewal is virtually certain and will be achieved without significant costs.
Amortization shall begin when the asset is in the location and condition necessary for it to be capable of
operating in the manner intended by management.
Amortization method
There are variety of amortization methods. The choice depends on the judgment of the management. When
making the judgment, IAS 38 requires management to choose the method that best reflects the expected
pattern of consumption of the future economic benefits embodied in the asset. If that pattern cannot be
determined reliably, the entity shall use the straight-line method. IAS 38 prohibits the use of an amortization
method that is based on revenue.
Residual value
An intangible asset’s residual value is assumed to be zero unless the entity can demonstrate its ability to sell
the intangible asset before the end of its economic life, as evidenced by existence of:
a. A third party commitment to purchase the asset at the end of its useful life; or
b. An active market where the asset can be sold at the end of its useful life.
IDENTIFIABLE INTANGIBLE ASSETS

PATENT
 A government-granted license conferring the sole right to an inventor to exclude others from making,
using or selling an invention.
Cost of Patent
1. Acquired by purchase
Purchase price XX
Import duties XX
Nonrefundable purchase taxes XX
Directly attributable cost of preparing the asset for the intended use XX
Cost of patent XX
Mobile : 0927 283 8234
Telephone : (043) 723 8412
2. Internally developed patent

 The cost normally includes:
(1) Licensing
(2) Other related legal fees in securing the patent rights
 All research and development costs are expensed immediately.
 Exception: all development costs incurred from the time the technology feasibility is established
are capitalized as cost of the patent.
Amortization of Patent
(a) Patent acquired by purchase. The cost shall be amortized over the remaining legal life or useful life,
whichever is shorter.
(b) Internally developed patent. The original cost shall be amortized over the legal life or useful life,
whichever is shorter.
(c) Acquisition of competitive patent to protect the original patent. The cost of the competitive patent
shall be amortized over the remaining life of the old patent.
(d) Acquisition of a related patent
 Related patent is acquired to extend the life of the old patent. The cost of the related patent and
any unamortized cost of the old patent shall be amortized over the extended life.
 No extension of life.
o New patent – amortized over its own useful life.
o Old patent – amortized over its remaining useful life.
Impairment of Patent
 Legal life: The legal life of patent is 20 years.
 Classification of patent: Intangible asset with a definite life.
 Impairment method: Tested for impairment whenever there is an indication of impairment at the
end of reporting period.
Cost of Litigation
 Whether the litigation is successful or not, the cost of litigation is expensed.
 However, if the litigation is unsuccessful, the patent is also written off as a loss.
TRADEMARK
 A distinctive design, symbol, or name that uniquely identifies a product.
Cost of Trademark
Purchase price XX
Directly attributable costs related to acquisition XX
Cost of trademark XX
2. Internally developed trademark

 The cost includes expenditures required to establish it such as:
(1) Filing fees
(2) Registry fees
(3) Other expenses incurred in securing the trademark such as design cost of the trademark
Amortization and Impairment of Trademark

 Legal life: The legal life of trademark is 10 years and may be renewed for periods of 10 years each.
 Classification of trademark:
1. Intangible asset with an indefinite useful life.
2. Intangible asset with a definite life.
 Amortization: The trademark may or may not be amortized depending on its classification.
 If the trademark is classified as having a definite life, it is amortized at the shorter between its
useful life and legal life.
 If the trademark is classified as having an indefinite life, it is not amortized.
 Impairment method:
 Trademark with indefinite life: Tested for impairment (1) at least annually and (2) whenever
there is an indication of impairment.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
 Trademark with definite life: Tested for impairment whenever there is an indication of
impairment at the end of reporting period.
Cost of Litigation
 Whether the litigation is successful or not, the cost of litigation is expensed.
 However, if the litigation is unsuccessful, the trademark is also written off as a loss.
COPYRIGHT
 A government-granted license or right to an author, composer or artist enabling them to publish, sell
or otherwise benefit from the literary, musical or artistic work.
Cost of Copyright
 The cost of copyright consists of all expenditures in the production of the work including those
expenditures required to establish or obtain the right.
Copyright acquired by purchase

Cash paid to acquire the copyright XX
Directly attributable costs necessary for the intended use XX
Cost of copyright XX
Amortization and Impairment of Copyright

 Legal life: The term of protection is during the life of the author and for 50 years after death.
 Classification of copyright:
3. Intangible asset with an indefinite useful life.
4. Intangible asset with a definite life.
 Amortization: The copyright may or may not be amortized depending on its classification.
 If the copyright is classified as having a definite life, it is amortized at the shorter between its
useful life and legal life.
 If the copyright is classified as having an indefinite life, it is not amortized.
 Impairment method:
 Copyright with indefinite life: Tested for impairment (1) at least annually and (2) whenever
 Copyright with definite life: Tested for impairment whenever there is an indication of
impairment at the end of reporting period.
FRANCHISE
 A right granted by a party called the franchisor to another party called the franchisee to sell its products
using its name.
Cost of Franchise
Initial franchise fee XX
Directly attributable costs necessary for its intended use
(e.g., legal fees and other expenses incurred in connection with the acquisition of the right) XX
Cost of franchise XX
Continuing franchise fee or periodic payment is considered outright expense.
Amortization and Impairment of Franchise

 Classification of franchise: Intangible asset with a definite useful life.
 Amortization: The franchise is amortized over the period stated in the agreement.
 Impairment method: Tested for impairment whenever there is an indication of impairment at the
end of reporting period.
CUSTOMER LIST
 A database containing the names, contact information, order history and other relevant information for
a list of customers.
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Telephone : (043) 723 8412
Cost of Customer list

Purchase price XX
Directly attributable costs XX
Cost of Customer list XX
2. Internally-generated
 All costs incurred in generating the customer list shall be expensed and not capitalized.
UNIDENTIFIABLE INTANGIBLE ASSET

GOODWILL
Consideration transferred XX
Fair value of identifiable net assets (XX)
Goodwill (Gain on bargain purchase) XX(XX)
Recognized?
Purchased goodwill 
Internally-developed goodwill 
Amortization and Impairment of Goodwill

 Classification of goodwill: Intangible asset with an indefinite useful life.
 Amortization: The goodwill is not amortized.
 Impairment method: Tested for impairment (1) at least annually and (2) whenever there is an
indication of impairment.
DERECOGNITION
 An intangible asset shall be derecognized on disposal or when no future economic benefits are
expected from its use or disposal.
 The gain or loss arising from derecognition of an intangible asset shall be determined as the difference
between the net disposal proceeds and the carrying amount of the asset. This amount is recognized
in profit or loss in the period when the asset is derecognized.
FINANCIAL STATEMENT PRESENTATION

 Intangible assets is presented under the non-current assets section of the statement of financial
position.
Problem 1:
On January 2, 2020, Silver Line Company developed a new machine for manufacturing baseballs. Because the
machine is considered very valuable, the company had it patented.
The following expenditures were incurred in developing and patenting the machine:
Purchase of special machine to be used solely for development of the new machine P1,800,000
Research salaries and fringe benefits for engineers and scientists 200,000
Cost of testing prototype 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required by patent office to be filed with patent application 40,000
The company elected to amortize the patent over ten years.
On January 2, 2022, the company paid P72,000 to successfully defend the patent in an infringement suit.
On January 3, 2023, the company determined that the remaining useful life of the patent is five years.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
1. What amount should be capitalized as cost of patent on January 2, 2020?

2. What amount of research and development cost should be expensed in 2020?
3. What is the patent amortization expense for the year 2022?
4. What is the patent amortization expense for the year 2023?
5. What is the carrying value of the patent on December 31, 2023?
Problem 2:
On January 2, 2012, El Professor Co. spent P392,000 to apply for and obtain a patent on a newly developed
product. The patent had an estimated useful life of 10 years. At the beginning of 2014, the company spent
P56,000 in successfully prosecuting an attempted infringement of the patent.
At the beginning of 2017, the company purchased for P120,000 a patent that was expected to prolong the life of
its original patent by 5 years. On July 1, 2020, a competitor obtained rights to a patent that made the company’s
patent obsolete.
1. What is the patent amortization expense for 2013?

3. What is the carrying value of the patent at December 31, 2016?
5. What is the carrying value of the patent at December 31, 2017?
6. How much is the impairment loss to be recognized for 2020?
Problem 3:
RDC Company incurred the following research and development costs in the current year:
Equipment acquired for use in various R and D projects 975,000

Depreciation on the above equipment 135,000
Materials used 200,000
Compensation costs of personnel 500,000
Outside consulting fees 150,000
Indirect costs appropriately allocated 250,000
What total amount of research development costs should be recognized as expense for the current year?
A. 850,000 C. 1,235,000
B. 1,085,000 D. 1,825,000
Problem 4:
Ned Company made the following expenditures relating to Product AA:
Legal costs to file a patent on Product AA. Production of the finished product
would not have been undertaken without the patent 100,000
Special equipment to be used solely for development of Product AA.
The equipment has no other use and has an estimated useful life of four years 600,000
Labor and material costs incurred in producing a prototype model 2,000,000
Cost of testing the prototype 800,000
What is the total amount of costs that should be expensed when incurred?
A. 2,800,000 C. 3,400,000
B. 2,950,000 D. 3,500,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Problem 5:
You noted the following items relative to the GONE IN THE WIND Corp.’s "Intangible Assets” in connection with
your examination of the GONE IN THE WIND Corp.’s financial statements for the year 2020.
Franchise
On January 1, 2020, the company signed an agreement to operate as franchisee of Jolly Donalds Company for
an initial franchise fee of P680,000. Of this amount, P200,000 was paid when the agreement was signed and
the balance was payable in four annual payments of P120,000 each, beginning January 1, 2021. The agreement
provides that the down payment is not refundable and no future services are required of the franchisor. The
implicit rate for a loan of this type is 14%. The agreement also provides the 5% of the revenue from the franchise
must be paid to the franchisor annually. The company’s revenue from the franchise for 2020 was P8,000,000.
The company estimates the useful life of the franchise to be ten years.
Patent
On July 1, 2020, the company purchased a patent from an inventor who asked P1,100,000 for it. The company
paid for the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary shares, par P10
(market value, P20 per share); and a note payable due at the end of three years, face amount, P500,000,
noninterest bearing. The current interest rate for this type of financing is 12 percent. The company estimates the
useful life of the patent to be ten years.
Trademark
The company purchased for P1,200,000 a trademark for a very successful six pack abs-inducing drink it markets
under the name “Bread Tummy Drink”. The trademark was determined to have an indefinite life. A competitor
recently introduced a product that is in direct competition with the “Bread Tummy Drink”, thus suggesting the
need for an impairment test. Data gathered by the entity suggests that the useful life of the trademark is still
indefinite, but the cash flows expected to be generated by the trademark have been reduced either to P40,000
per year (with a probability of 70%) or to P80,000 per year (with 30% probability). The appropriate discount rate
is 5%.
Based on the above and the result of your audit, determine the following: (Round of PV factors to four
decimal places)
1. Carrying amount of franchise as of December 31, 2020
2. Carrying amount of patent as of December 31, 2020
3. Carrying amount of trademark as of December 31, 2020
4. Total expenses related to the intangible assets in 2020
Problem 6:
Karen Corporation is negotiation with Julius Corp. to purchase all of Julius Corp.’s net assets and assume all
liabilities.
You have been asked to help develop a tentative offer price which will include the least amount of goodwill
involved (since Karen shall be paying the net assets at FMV plus additional amount which shall correspond to
the goodwill.)
Karen made available to you the following information about the books of Julius Corp.
BV FMV
Current Assets 550,000 700,000
Non-current assets* 2,650,000 2,800,000**
Current and Noncurrent Liabilities 900,000 900,000
Total accumulated earnings from 2017-2021*** 1,800,000
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Telephone : (043) 723 8412
*Book value includes a P200,000 goodwill and P1,500,000 depreciable assets with an average remaining useful
life of 5 years. The balance was attributed to the land whose fair value approximated its book value.
**Excludes the goodwill.
***Included in the accumulated earnings above is an annual presidents’ bonus averaging to P50,000 and a gain
on sale of equipment in 2012 at P200,000.
The normal earnings of similar companies within the industry is 10%.
You were given the following options by which goodwill shall be computed:
a) Purchase of goodwill in the form of 5 years excess earnings.
b) Capitalize excess earnings at 25%
c) Capitalize average earnings at 10%
d) Present value method assuming current effective rate is at 10% (5 years)
Requirements:
1. Compute for the goodwill under each option above:
2. Compute for the purchase/acquisition price under each option above:
LEASEHOLD IMPROVEMENTS
Leasehold improvements are modifications made by a tenant to a property leased under an operating lease.
Problem 7:
On January 1, 2018, Lao Company signed a 12-year lease for warehouse space. The company has an option
to renew the lease for an additional 8-year period on or before January 1, 2022.
During 2020, the company made substantial improvement to the warehouse. The cost of the improvement was
P540,000 with an estimated useful life of 15 years.
On December 31, 2020, the company intended to exercise the renewal option.
On December 31, 2020, what is the carrying value of the leasehold improvement?
A. 486,000 C. 510,000
B. 504,000 D 513,000
THEORY OF ACCOUNTS
1. Which of the following are the essential characteristics of an intangible asset?
I. Identifiability
II. Separability
III. Control
IV. Future economic benefits
V. Indefinite useful life
A. I, III, and IV
B. II, III, and IV
C. I, II, III, and IV
D. I, II, III, IV, and V
2. Intangible assets are initially recognized at

A. Cost
B. Fair value
C. Fair value less costs of disposal
D. Purchase price
10 | P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
Mobile : 0927 283 8234
Telephone : (043) 723 8412
3. After initial recognition, an intangible asset shall be measured using

A. Cost model
B. Revaluation model
C. Cost model or revaluation model
D. Cost model or fair value model
4. An entity that acquired an intangible asset may use the revaluation model for subsequent measurement
only when,
A. The useful life of the intangible asset can be reliably determined.
B. An active market exists for the intangible asset.
C. The cost of the intangible asset can be measured reliably
D. The intangible asset is a monetary asset.
5. When intangible assets are self-generated, costs incurred in research phase are
A. Capitalized
B. Capitalized only to the extent of the limits provided under the standard.
C. Expensed immediately
D. Expense or capitalize, as a matter of accounting policy choice and professional judgement.
6. When intangible assets are self-generated, costs incurred in development phase are
A. Capitalized.
B. Capitalized only to the extent of the limits provided under the standard.
C. Expensed immediately.
D. Expensed immediately, unless they meet all of the conditions for capitalization.
7. A patent shall be amortized over

A. The useful life
B. The legal life of twenty (20) years
C. The useful life or 20 years, whichever is longer
D. The useful life or 20 years, whichever is shorter
8. Legal fees incurred by an entity in defending its patent rights should be expensed when the outcome of
the litigation is
Successful Unsuccessful
A. Yes Yes
B. No Yes
C. Yes No
D. No No
9. Intangible assets are amortized

A. Using straight-line method applied to the shorter of an intangible asset’s useful life and legal life.
B. Using an amortization method that best reflects the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.
C. Using a residual value of zero, except in cases where the revaluation model is applied.
D. All of these
10. The method of amortization to be used shall reflect the pattern in which the future economic benefits from
the asset are expected to be consumed by the entity. If such pattern cannot be determined reliably, the
method of amortization to be used shall be the
A. Production method
B. Revenue method
C. Straight line method
D. Diminishing balance method
11. Which statement is true concerning amortization and impairment of intangible assets?
A. Intangible assets with finite useful life are amortized over the useful life.
B. Intangible assets with finite useful life are tested for impairment at the end of reporting period when
C. Intangible assets with indefinite useful life are not amortized but are tested for impairment at least
annually.
D. All these statements are true.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
12. The residual value of an intangible asset with a finite useful life shall be assumed zero, except
A. When there is a commitment by a third party to purchase the asset at the end of 'the useful life.
B. When there is an active market for the asset.
C. When there is a commitment by a third party to purchase the asset at the end of useful life or there is
an active market for the asset and it is probable that such market will exist at the end of useful life.
D. There are no exceptions.
13. What is the legal life of trademark?

A. 10 years
B. 20 years
C. 10 years and renewable after every 10 years.
D. 20 years and renewable after every 20 years.
14. Which statement is incorrect in relation to trademark?

A. A trademark can be regarded as an intangible asset with an indefinite useful life.
B. A trademark is an identifiable intangible asset.
C. A trademark with indefinite useful life is not amortized but tested for impairment at least annually.
D. A trademark is amortized and tested for impairment whenever there is an indication of impairment.
15. The proper accounting for costs incurred in creating computer software is
A. To capitalize all costs until the software is sold.
B. To charge research and development expense when incurred until technological feasibility has been
established for the product.
C. To charge research and development expense only if the computer software has alternative future
use.
D. To capitalize all costs as incurred until a detailed program design or working model is created.
END OF HANDOUT

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No. 125 Brgy.

Future economic benefits

Directly attributable costs include the following:

3. Acquisition as part of business combination

 Without commercial substance

INTERNALLY-GENERATED INTANGIBLE ASSET

Examples of directly attributable costs are:

Examples of research activities:

Accounting for research costs

Examples of development activities:

Accounting for development costs

Otherwise, the development costs shall be recognized as an expense.

Activities not considered research and development

IDENTIFIABLE INTANGIBLE ASSETS

2. Internally developed patent

2. Internally developed trademark

Amortization and Impairment of Trademark

Copyright acquired by purchase

Amortization and Impairment of Copyright

Continuing franchise fee or periodic payment is considered outright expense.

Amortization and Impairment of Franchise

Cost of Customer list

UNIDENTIFIABLE INTANGIBLE ASSET

Amortization and Impairment of Goodwill

FINANCIAL STATEMENT PRESENTATION

The company elected to amortize the patent over ten years.

1. What amount should be capitalized as cost of patent on January 2, 2020?

1. What is the patent amortization expense for 2013?

Equipment acquired for use in various R and D projects 975,000

Current Assets 550,000 700,000

Non-current assets* 2,650,000 2,800,000**

Current and Noncurrent Liabilities 900,000 900,000

Total accumulated earnings from 2017-2021*** 1,800,000

**Excludes the goodwill.

The normal earnings of similar companies within the industry is 10%.

2. Intangible assets are initially recognized at

3. After initial recognition, an intangible asset shall be measured using

7. A patent shall be amortized over

9. Intangible assets are amortized

13. What is the legal life of trademark?

14. Which statement is incorrect in relation to trademark?

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