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Definition of Intangible Assets
They lack physical existence and they are not financial instruments
They provide benefits over a period of years and thus are classified as long-term assets
How are intangible assets recorded?
They are recorded at cost, which includes all acquisition costs plus expenditures to make the asset ready for its intended use.
The allocation of cost of intangible assets in a systematic way
Only limited-life intangibles are amortized.
The excess of purchase price over the FMV of the identifiable net assets acquired
Has an indefinite life and is not amortized, but can be adjusted if impaired
Computation of goodwill
Assets - liabilities = Net assets
less purchase price = goodwill
Journal entry for goodwill
Debit the acquisition of each asset and goodwill
Credit A/P or cash etc.
How is the impairment of limited-life intangibles handled?
Same as PPE, use the recoverability test and then journalize
loss on impairment
according to the FMV
These impairments cannot be restored
How is the impairment of indefinite-life intangibles handled?
The recoverability test is NOT used, only the FV test: compare the carrying value with FMV and record a loss on impairment if FMV < carrying value
Research and Development costs
Expense when incurred