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Lecture 11

RSM220H1 Lecture 11: Week 11 Intangible Assets
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Department
Rotman Commerce
Course Code
RSM220H1
Professor
Amy Kwan

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Description
Week 11: Intangible Assets April 2, 2018 Characteristics Goodwill Intangible Only recognized when business is acquired Cannot be sold separately Only sold when business is sold Asset representing future economic benefits arising from other assets required in business combination that are not individually identified and separately recognized Calculation of goodwill: If 100 of business is acquired, all identifiable net assets are recognized at fair value on acquisition date Difference between fair value of consideration transferred to acquire business and fair value of amounts assigned to identifiable net assets is recognized as goodwill Intangibles 1. Intangible assets are identifiable Results from contractual other legal rights Is separable Can be separated from entity, soldtransferredlicensedexchangedrented either by itself or in combination with another contract, identifiable asset, or liability 2. Intangible assets lack physical substance 3. Intangible assets are nonmonetary Intangibles Recognition and measurement At acquisition Measured at cost Recognition criteria: i. Probable future economic benefits ii. Cost reliably measured Purchased intangibles Measured at cost Acquisition cost and expenditures to ready for intended use If acquired for shares, cost is assets fair value unless value cannot be measured reliably Use fair value of shares ASPE allows for either fair value of asset or shares Fair value of item given upintangible received if nonmonetary exchange Intangibles purchased in business combination When several intangibles are bought together, cost is allocated to each intangible based on relative fair value Intangibles that are not identifiable assets are goodwill Prepayments Prepaid expenses are recognized as assets until expensed when right to receive goodservice no longer exists Can be recognized if: Entity has paid for goods before delivery Entity has paid for services before receivingusing services Internally developed intangible assets Generating intangible asset broken down into research and development phases If uncertainty about which phase an activity relates to, is classified as research Research phase costs are expensed when incurred Criteria of development phase: i. Technical feasibility of completing intangible asset ii. Intention to complete for use or sale iii. Ability to use or sell iv. Availability of technical, financial, and other resources needed to complete, use, and sell v. Future economic benefits Existence of market if sold, usefulness to entity if internal used vi. Ability to reliably measure costs associated with and attributed to intangible asset during
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