AFA 717 Lecture Notes - Lecture 10: Intangible Asset, Asset
• The following internally generated intangibles are prohibited from being capitalized:
• Brands
• Mastheads
• Publishing titles
• Customer lists
• If these were purchased, then the purchase price would be recognized as an intangible
asset
• Research and development (R&D) includes the activities to create new products and processes,
or to improve old ones, and to discover new knowledge to be valuable in future
• Distinction between research and development is critical:
• Research costs are expensed
• Development costs are capitalized, if certain recognition criteria are met. If they are not
met then development costs are expensed
• Research is original and planned investigation with the hope of gaining new scientific or
technical knowledge and understanding
• Development - the application of research findings/knowledge into a plan or design for
new or substantially improved materials, devices, products, processes, systems or
services prior to the commencement of commercial productions or use
• An intangible asset can be recognized from the development stage of an internal project only
after all of the following six specific criteria are met:
• Asset is proven to be technically feasible;
• Management has intent to complete and then market or use the asset;
• Entity has the ability to use or sell the asset;
• Probable that future economic benefits will flow from the product or process;
• Adequate resources exist to complete the project; and
• Costs can be reliably measured.
• Software may be developed for:
• internal use; or
• as a product to be sold to
• If integrated into a PP&E, then capitalize as a separate component as a tangible asset
• If it is not an integral part of tangible asset, then computer software is classified as an intangible
asset
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