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2024 R31 Module 31.1
2024 R31 Module 31.1
2024 R31 Module 31.1
Intangible Assets
and Marketable Securities
Intangible Assets
Identifiable intangible
Can be acquired singularly, linked to rights and privileges
having finite benefit periods
Amortized over estimated useful life
Unidentifiable intangible
Cannot be acquired singularly and may have indefinite
benefit period (e.g., goodwill)
Not amortized; annual impairment review
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Intangible Assets and Marketable Securities
Intangible Assets
May only be recognized if they can be measured reliably
Generally excludes internally generated intangibles—subjectivity
Typical intangibles:
Purchased patents and Purchased franchise
copyrights and license costs
Purchased brands and Goodwill
trademarks Computer software
Direct response advertising development costs
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Expensed Items
Internally generated brands, Advertising and promotion
mastheads, publishing titles, Relocation and
customer lists, etc. reorganization costs
Start-up costs Redundancy and
Training costs termination costs
Administrative and general Research and development
overhead (development may be
capitalized under IFRS)
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Intangible Assets and Marketable Securities
R&D
Under IFRS, capitalize if:
Project is technically feasible
Resources exist to complete project
Market exists for the product
Company has intention to complete and sell product
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R&D: Example
Lowe S.A. worked on two projects during the year. What costs will be
capitalized, and what costs will be expensed under the IFRS?
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Intangible Assets and Marketable Securities
R&D: Example
Project 1:
Aims to develop hydrogen fuel cells for motor vehicles
Not yet developed a working prototype
Believes in long run could revolutionize motor industry
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R&D: Solution
€m
Materials 150
Direct labor 80
Production overhead 40
Administrative overhead 30
Capitalize: €0
Expense: €300m
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Intangible Assets and Marketable Securities
R&D: Example
Project 2:
Aims to develop new type of catalytic converter
Has developed working protype, now working on
commercial version
Believes demand would be high
Has resources to develop and launch product
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R&D: Solution
€m
Materials 120
Direct labor 60
Production overhead 30
Administrative overhead 30
Capitalize: €210m
Expense: €30m
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Intangible Assets and Marketable Securities
Goodwill
Goodwill is the difference between the acquisition price and
the fair market value of the acquired firm’s net assets.
The additional amount paid represents the amount paid for
assets not recorded on the balance sheet.
Fair value involves management discretion.
Goodwill is not amortized.
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Goodwill Analysis
Impairment indicates that goodwill often results from
overpayment to acquire entity
Remove the impact of goodwill from ratios:
Remove goodwill from assets
Remove any impairment from income statement
Evaluate business acquisitions considering purchase
price, net assets, earnings prospects
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Intangible Assets and Marketable Securities
Financial Instruments
Stocks
Bonds Measured at historical cost,
amortized cost, or fair value.
Receivables
Notes receivable
Loans to others
Derivatives
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Intangible Assets and Marketable Securities
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Intangible Assets and Marketable Securities
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