CHAPTER 12
Intangible Assets
ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC)
Topics
Questions
Brief
Exercises
Exercises
Problems
Concepts
for Analysis
1.
Intangible assets;
concepts, definitions;
items comprising
intangible assets.
1, 2, 3, 4, 5, 6,
7, 8, 9, 10, 11,
12, 13, 14, 25
14
1, 2, 3,
5, 6
1, 2, 3
ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE)
Learning Objectives
Brief
Exercises
Exercises
Problem
s
Concept
s for
Analysis
1.
Discuss the characteristics, valuation, and
amortization of intangible assets.
14
1, 2, 3
5
1, 2, 3
2.
Describe the accounting for various types of
intangible assets.
1, 2, 3, 4
1, 2, 3, 4, 5,
6, 7, 9, 10,
1, 2, 3, 6
2, 3
3.
Identify the accounting issues for recording
goodwill.
5, 8, 9
12, 13, 15
5, 6
4.
Explain impairment procedures and
presentation requirements for intangible
assets.
6, 7, 8, 9,
13, 14
7, 14, 15
5, 6
5.
Describe accounting and presentation for
research and development and similar costs.
10, 11, 12,
4, 5, 6, 8, 9,
10, 16, 17
4
1, 2, 4, 5
ASSIGNMENT CHARACTERISTICS TABLE
Item
Description
Level of
Difficulty
Time
(minutes)
E12.1
Classification issues—intangibles.
Moderate
15–20
E12.2
Classification issues—intangibles.
Simple
10–15
E12.3
Classification issues—intangibles.
Moderate
10–15
E12.4
Intangible amortization.
Moderate
15–20
E12.5
Correct intangible asset account.
Moderate
15–20
E12.6
Recording and amortization of intangibles.
Simple
15–20
E12.7
Accounting for trade name.
Simple
10–15
E12.8
Accounting for organization costs.
Simple
10–15
E12.9
Accounting for patents, franchises, and R&D.
Moderate
15–20
E12.10
Accounting for patents.
Moderate
15–20
E12.11
Accounting for patents.
Moderate
20–25
E12.12
Accounting for goodwill.
Moderate
20–25
E12.13
Accounting for goodwill.
Simple
10–15
E12.14
Copyright impairment.
Simple
15–20
E12.15
Goodwill impairment.
Simple
15–20
E12.16
Accounting for R&D costs.
Moderate
15–20
E12.17
Accounting for R&D costs.
Moderate
10–15
P12.1
Correct intangible asset account.
Moderate
15–20
P12.2
Accounting for patents.
Moderate
20–30
P12.3
Accounting for franchise, patents, and trademark.
Moderate
20–30
P12.4
Accounting for R&D costs.
Moderate
15–20
P12.5
Goodwill, impairment.
25–30
P12.6
Comprehensive intangible assets.
Moderate
30–35
CA12.1
Development costs.
Moderate
15–20
CA12.2
Accounting for pre-opening costs.
Moderate
20–25
CA12.3
Accounting for patents.
Moderate
25–30
CA12.4
Accounting for research and development costs.
Moderate
25–30
CA12.5
Accounting for research and development costs.
Moderate
20–25
ANSWERS TO QUESTIONS
1. The three main characteristics of intangible assets are:
(a) they are identifiable.
2. If intangibles are acquired for shares, the cost of the intangible is the fair value of the consideration
3. Limited-life intangibles should be amortized by systematic charges to expense over their useful
life. An intangible asset with an indefinite life is not amortized.
LO: 1, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
4. When intangibles are created internally, it is often difficult to determine the validity of any future
service potential. To permit deferral of these types of costs would lead to a great deal of subjectivity
5. Companies cannot capitalize self-developed, self-maintained, or self-created goodwill. These expen-
6. Factors to be considered in determining useful life are:
(a) The expected use of the asset by the entity.
(b) The effects of obsolescence, demand, competition, and other economic factors.
7. The amount of amortization expensed for a limited-life intangible asset should reflect the pattern in
which the asset is consumed or used up, if that pattern can be reliably determined. If the pattern of
8. This trademark is an indefinite life intangible and, therefore, should not be amortized.
LO: 1,2, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
9. The $190,000 should be expensed as research and development expense in 2019. The $91,000 is
expensed as selling and promotion expense in 2019. The $45,000 of costs to legally obtain the
Questions Chapter 12 (Continued)
10. Patent Amortization Expense (£350,000 10) ………………………….. 35,000
11. Artistic-related intangible assets involve ownership rights to plays, pictures, photographs, and
video and audiovisual material. These ownership rights are protected by copyrights. Contract related
12. Varying approaches are used to define goodwill. They are
(a) Goodwill should be measured initially as the excess of the fair value of the acquisition cost
over the fair value of the net assets acquired. This definition is a measurement definition but
does not conceptually define goodwill.
(b) Goodwill is sometimes defined as one or more unidentified intangible assets and identifiable
13. Goodwill is recorded only when an entire business is acquired by purchase. Goodwill acquired in a
14. Companies that recognize goodwill in a business combination consider it to have an indefinite life
and therefore should not amortize it. Although goodwill may decrease in value over time,
predicting the actual life of goodwill and an appropriate pattern of amortization is extremely
difficult. In addition, investors find the amortization charge of little use in evaluating financial
Questions Chapter 12 (Continued)
amortization of goodwill combined with an adequate impairment test should provide the most
useful financial information to the investment community.
LO: 1,3, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
15. Accounting standards require that if events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable, then the carrying amount of the asset should be
16. Yes, Zeno should record the recovery of the impairment loss from last year.
LO: 4, Bloom: K, Difficulty: Simple, Time: 3-5, AACSB: None, AICPA BB: None, AICPA FC: Reporting, AICPA PC: Communication
17. Impairment losses are reported as part of income from continuing operations, generally in the
“Other income and expense” section. Impairment losses (and recovery of losses) are similar to
18. The amount of goodwill impaired is HK$400,000, computed as follows:
Recorded goodwill …………………………..……………. HK$4,000,000
19. Research and development costs are incurred to develop new products or processes, to improve
present products, or to discover new knowledge. Development costs can be capitalized once
20. (a) Personnel (labor) type costs incurred in R&D activities should be expensed as incurred.
(b) Materials and equipment costs should be expensed immediately unless the items have
21. See Illustration 12-15.
(a) Expense as R&D.
22. Each of these items should be charged to current operations as expense when incurred.
Questions Chapter 12 (Continued)
24. These costs are referred to as start-up costs, or more specifically organizational costs in this case.
The accounting for start up costs is straightforward—expense these costs as incurred. The
25.The total life, per revised facts, is 40 years (10 + 30). There are 30 (40 – 10) remaining years for
amortization purposes. Original amortization:
$540,000
= $18,000 per year; $18,000 X 10 years
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 12.1
Patents …………………………………………………………………..
54,000
Cash ………………………………………………………………
Patent Amortization Expense …………………………………..
Patents ($54,000 X 1/10 = $5,400) ……………………..
BRIEF EXERCISE 12.2
Patents …………………………………………………………………..
24,000
Cash ………………………………………………………………
Patent Amortization Expense …………………………………..
Patents [($43,200 + $24,000) X 1/8 = $8,400] …………
BRIEF EXERCISE 12.3
Trade Name …………………………………………………………….
68,000
Cash ………………………………………………………………
Trade Name Amortization Expense …………………………..
Trade Name (€68,000 X 1/8 = €8,500) ………………..
BRIEF EXERCISE 12.4
Franchise ……………………………………………………………….
120,000
Cash ………………………………………………………………
120,000
Franchise Amortization Expense …………………………..
Franchise (£120,000 X 1/8 X 9/12 = £11,250) ………
BRIEF EXERCISE 12.5
Purchase price …………………………………………………….
£700,000
Fair value of assets ………………………………………………
Fair value of liabilities …………………………………………..
Fair value of net assets …………………………………………
(600,000)
BRIEF EXERCISE 12.6
Loss on Impairment ………………………………………………..
190,000
Patents ($300,000 – $110,000) ………………………….
190,000
BRIEF EXERCISE 12.7
Patents [$130,000 – ($110,000 – $11,000*)] ………………..
31,000
BRIEF EXERCISE 12.8
Because the recoverable amount of the division exceeds the carrying
BRIEF EXERCISE 12.9
Loss on Impairment (HK$800,000 – HK$750,000) ………
50,000
Goodwill ……………………………………………………….
50,000
BRIEF EXERCISE 12.10
Organization Cost Expense ……………………………………..
60,000,000
Cash ………………………………………………………………
BRIEF EXERCISE 12.11
Intangible Asset (Capitalized Costs) …………………………
75,000
Research and Development Expense ……………………….
Cash ………………………………………………………………
BRIEF EXERCISE 12.12
(a) Capitalize
(b) Expense
Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 12–11
BRIEF EXERCISE 12.13
Carrying
Amount
Life in
Months
Amortization
Per Month
Months
Amortization
Patent (1/1/19)
$288,000
96*
$3,000
12
BRIEF EXERCISE 12.14
Copyright No. 1 for €9,900 should be expensed and therefore not reported
on the statement of financial position.
Legal costs (12/1/19)
85,000
85
$1,000
$373,000
EXERCISE 12.1 (15–20 minutes)
(b) 1. Long-term investments in the statement of financial position.
2. Property, plant, and equipment in the statement of financial position.
3. Research and development expense in the income statement.
4. Current asset (prepaid rent) in the statement of financial position.
5. Property, plant, and equipment in the statement of financial position.
6. Research and development expense in the income statement.
EXERCISE 12.2 (10–15 minutes)
The following items would be classified as an intangible asset:
Cable television franchises Film contract rights
Music copyrights Customer lists
Goodwill Covenants not to compete
EXERCISE 12.2 (Continued)
Investments in associated companies would be classified as part of the
investments section of the statement of financial position.
EXERCISE 12.3 (10–15 minutes)
(a)
Trademarks …………………………..………………………………….
€20,000
(b) Organization costs, €24,000, should be expensed.
Bonds payable, €35,000, should be reported in the non-current liabilities
section.
EXERCISE 12.4 (15–20 minutes)
1. Palmiero should report the patent at $900,000 (net of $600,000 accu–
mulated amortization) on the statement of financial position. The
Amortization for 2017 and 2018 ($1,500,000/10) X 2 …….
2. Palmiero should amortize the franchise over its estimated useful life.
Because it is uncertain that Palmiero will be able to retain the franchise
3. These costs should be expensed as incurred. Therefore $275,000 of
4. Because the license can be easily renewed (at nominal cost), it has an
EXERCISE 12.5 (15–20 minutes)
Research and Development Expense ………………………..
940,000
Patents ……………………………………………………………………
75,000
Rent Expense [(5 ÷ 7) X HK$91,000] …………………………..
65,000
Prepaid Rent [(2 ÷ 7) X HK$91,000] …………………………...
Advertising Expense ………………………………………………..
Income Summary (or a loss account) ………………………..
Bonds Payable …………………………………………………………
Interest Expense ………………………………………………………
Share Premium—Ordinary ………………………………….
Intangible Assets ……………………………………………….
Patent Amortization Expense [(HK$75,000 ÷ 12) X 1/2] ….
3,125
EXERCISE 12.6 (15–20 minutes)
Patents (380,0000 + 55,000) …………………………..
435,000
Goodwill …………………………………………………………………
360,000
Franchise ……………………………………………………….
450,000
Copyright ……………………………………………………….
156,000
Intangible Assets ……………………………………………
Amortization Expense ……………………………………………..
Patents (£380,000/8) + (£55,000 X 4/88)* ……………
Franchise (£450,000/10 X 6/12) …………………………
Copyright (£156,000/5 X 5/12) …………………………..
Research and Development Expense
EXERCISE 12.7 (10–15 minutes)
(a) 2018 amortization: $18,000 ÷ 10 = $1,800.
12/31/18 book value: $18,000 – $1,800 = $16,200.
2019 amortization: ($16,200 + $7,800) ÷ 9 = $2,667.
EXERCISE 12.8 (10–15 minutes)
(a)
Attorney’s fees in connection with organization
of the company ……………………………………………………….
€17,000
Costs of meetings of incorporators to discuss
organizational activities …………………………………………..
State filing fees to incorporate …………………………..……….
(b)
Organization Cost Expense ……………………………………..
25,000
Cash (Payables) ……………………………………………..
EXERCISE 12.9 (15–20 minutes)
(a) DEVON HARRIS COMPANY
Intangibles Section of Statement of Financial Position
December 31, 2019
Patent from Bradtke Company, net of accumulated
amortization of $700,000 (Schedule 1) ………………………………
$1,800,000
Franchise from Greene Company, net of accumulated
amortization of $58,000 (Schedule 2) ………………………………..
522,000
EXERCISE 12.9 (Continued)
(b) DEVON HARRIS COMPANY
Income Statement Effect
For the Year Ended December 31, 2019
Patent from Bradtke Company:
Amortization of patent for 2019
($2,250,000 ÷ 5 years) ……………………………………..
$ 450,000
Franchise from Greene Company:
Amortization of franchise for 2019
($580,000 ÷ 10) ……………………………………………….
Payment to Greene Company
($2,500,000 X 5%) ……………………………………………
183,000
Research and development costs …………………………..
433,000
EXERCISE 12.10 (15–20 minutes)
(a)
2018
Research and Development Expense ……………………….
170,000
Cash ……………………………………………………….
170,000
Patents ……………………………………………………….
Cash ……………………………………………………….
Patents [(¥24,000 ÷ 10) X 3/12] ………………………….
2019
Patent Amortization Expense …………………………..
Patents (¥24,000 ÷ 10) …………………………..
EXERCISE 12.10 (Continued)
(b)
2020
Patents ……………………………………………………….
12,400
Cash ……………………………………………………….
12,400
Patent Amortization Expense …………………………..
2,575
Patents (¥$1,000 + ¥1,575) …………………………..
2,575
[Jan. 1–June 1: (¥24,000 ÷ 10) X
5/12 = ¥1,000
June 1–Dec. 31: (¥24,000 – ¥600 –
¥2,400 – ¥1,000 + ¥12,400) = ¥32,400;
(¥32,400 ÷ 12) X 7/12 = ¥1,575]
2021
Patent Amortization Expense …………………………..
2,700
Patents (¥32,400 ÷ 12) …………………………..
2,700
(c)
2022 and 2023
Patent Amortization Expense …………………………..
14,063
Patents (¥28,125 ÷ 2) …………………………..
14,063
(¥32,400 – ¥1,575 – ¥2,700) = ¥28,125
EXERCISE 12.11 (20–25 minutes)
(a)
Patent A
Life in years ……………………………………………………..
17
Life in months (12 X 17) …………………………………….
204
Amortization per month (W40,800 ÷ 204)…………….
W200
Number of months amortized to date
EXERCISE 12.11 (Continued)
Patent B
Life in years …………………………………………………….
10
Life in months (12 X 10) ……………………………………
120
Amortization per month (W15,000 ÷ 120) …………..
Number of months amortized to date
Book value 12/31/18 W11,250: (W15,000 – [W125 X 30])
Patent C
Life in years …………………………………………………….
4
Life in months (12 X 4) ……………………………………..
48
Amortization per month (W14,400 ÷ 48) …………….
Number of months amortized to date
At December 31, 2018
Patent A ………………………………………………….
W31,600
Patent B ………………………………………………….
Patent C ………………………………………………….
9,600
EXERCISE 12.11 (Continued)
(b) Analysis of 2019 transactions
2. The book value of Patent B is W11,250 and its recoverable
amount is W5,154; therefore Patent B is impaired. The impairment
loss is computed as follows:
Book value ………………………………………………
W11,250
Less: Present value of future
cash flows (W2,000 X 2.57710*) ……….
Patent B carrying amount (12/31/19) W5,154
At December 31, 2019
Patent A
W29,200
(W31,600 – [12 X W200])
Patent B
(Present value of future cash flows)
(W1,000* X 8)]
Patent D
(W28,500 – W1,500**)
*(W28,000 ÷ 28 mon.)
**Patent D amortization
Life in years
9 1/2
Life in months (12 X 9 1/2)
Amortization per month (W28,500 ÷ 114)