accounting presentation(updated)

ACCOUNTING PRESENTATION

Nader Nehal (B1405011) Kousar Sharmin Jany (B1405020) Faiaz Sababa Saeed (B1405023) Syeda Afrida Haque (B1405038)

Fazlee Wahid Omi (B14050113) Sk. Mamunur Rashid Sady (B1405144)

Group-3

PRESENTATION ON

What basically intangible asset is?

LET’S DEFINE

An asset that is not physical in nature.

'Intangible Asset 'is

INTANGIBLE ASSTES

FOR EXAMPLE

INTANGIBLE ASSETS REPRESENTS

“POTENTIAL REVENUE”

LEAKY COULDRON AND PAPER PLANE CO.*INFINITE*

INTANGIBLE ASSTEST CAN BE

“INTELLECTUAL PROPERTY”

LETS DISCUSS ELBORATELY

Two Main Characteristics:

Characteristics

(1) Lack of physical existence.(2) They are not financial instruments.

Normally classified as long-term asset.

Common types of intangibles:PatentsCopyrightsFranchises or licenses

Trademarks or trade namesGoodwill

INTANGIBLE ASSETS ISSUES

Purchased Intangibles:Recorded at cost.If purchased in exchange of stock, the fair value of the consideration given or received which is evident, should be recognized.Includes all costs necessary to make the intangible asset ready for its intended use.

VALUATION


Internally Created Intangibles:Expense as incurredOnly capitalize direct costs incurred in developing the intangible, such as legal costs.


Determine The Useful Life•Expected Use•Useful Life of relative assets•Legal Regulatory Conceptual Framework •Limiting useful life•Law supporting renewal or extension•Effect of obsolesce, demand, competition.Level of Maintenance cost


Limited-Life Intangibles:• Amortize to (Cost Less Residual Value)• Assume zero Residual value unless it has value to

another company after its useful life• Reflect the pattern in which the company consumes

the asset (if Determined)• Credit asset account or accumulated amortization.

AMORTIZATION OF INTANGIBLES

Indefinite-Life Intangibles:• No foreseeable limit on time the

asset is expected to provide cash flows.

• No amortization.

AMORTIZATION OF INTANGIBLES

Six Major Categories:

1) Marketing-related.2) Customer-related.3) Artistic-related.4) Contract-related.5) Technology-related.6) Goodwill.

TYPES OF INTAGIBLES

Marketing-Related Intangible Assets• Examples are:

Trademarks or trade names, newspaper mastheads, Internet domain names, and noncompetition agreements.

• Trademark or trade name has legal protection for indefinite number of 10 year renewal periods.

• Capitalize acquisition costs. • No amortization.

TYPES OF INTAGIBLES

Contract-Related Intangible Assets• Examples are:

franchise and licensing agreements, construction permits, broadcast rights, and service or supply contracts.

• Franchise (or license) with a limited life should be amortized to expense over the life of the franchise.

• Franchise with an indefinite life should be carried at cost and not amortized.

TYPES OF INTAGIBLES

Goodwill• Created by good relationships by building up a reputation.• A going concern valuation.• Measured at the time of business to be sold.• The excess or residual amount of the cost over the fair

value of the identifiable net assets purchased.• The most intangible of the intangible assets.• Can not be amortized; can only be impaired.• Internally created goodwill should not be capitalized.

TYPES OF INTAGIBLES

Recording:Purchased goodwill: Goodwill is recorded only when an entire business is purchased. The difference between fair value of identifiable net assets and purchased price is considered as goodwill.For example: ABC Ltd. purchased the net assets of XYZ company for $500,000 on 31 December 2012.

TYPES OF INTAGIBLES

Goodwill Write-off• Goodwill is considered to have an indefinite life• Should not be amortized• Only adjust carrying amount when goodwill is impaired.Bargain Purchase- Negative goodwill• Purchase price less than the fair value of the identifiable

net assets acquired.• Also referred as Negative goodwill.• Results from a market imperfection.• The excess amount is recorded as a gain by the purchaser.

TYPES OF INTANGIBLE ASSETS

Impairment of Limited-Life IntangiblesSame as impairment for long-lived assets in Chapter 11.1. If the sum of the expected future net cash inflows is less

than the carrying amount of the asset, an impairment has occurred (recoverability test).

2. The impairment loss is the amount by which the carrying amount of the asset exceeds the fair value of the asset (fair value test).The loss is reported as part of income from continuing operations, “Other expenses and losses” section.

IMPAIREMENT OF INTANGIBLE ASSETS

Recoverability test: If the sum of the expected future net cash flows is less than the carrying amount of the asset, an impairment has occurred.Expected Future Cash Flow $ 50000Carrying Amount $ 80000Difference $ (30000)

Asset is Impaired


Impairment of Indefinite-Life Intangibles Other than Goodwill• Should be tested for impairment at least

annually.• Impairment test is a fair value test.

• If the fair value of asset is less than the carrying amount, an impairment loss is recognized for the difference.

• Recoverability test is not used.


LASTLY

Frequently results in something that a company patents or copyrights such as:

new product, process, idea,

formula, composition, orliterary work.

Because of difficulties related to identifying costs with particular activities and determining the future benefits, all R & D costs are expensed when incurred.

RESEARCH AND DEVELOPMENT COST

THANK YOU

QUESTIONS?

accounting presentation(updated)

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