ARBC 106b Study Guide - Midterm Guide: Intangible Asset, Title Search, United States Copyright Office
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Tangible assets. Assets in this category include land, land improvements, buildings, equipment,
and natural resources. Krispy Kreme's land, buildings, and equipment fall into this category.
Intangible assets. Assets in this category include patents, trademarks, copyrights, franchises,
and goodwill. We distinguish these assets from property, plant, and equipment by their lack of
physical substance. The evidence of their existence often is based on a legal contract. Google's
copyrights are intangible assets.
Property, Plant, and Equipment
● consists of land, land improvements, buildings, equipment, and natural resources.
●We record a long-term asset at its cost plus
all expenditures necessary to get the
asset ready for use
● Capitalize- Recording an expenditure as an asset
● When we make an expenditure, we have the choice of recording it as an expense of the
current period or recording it as an asset and then allocating that cost as an expense
over future periods
● land a company is using in its operations.
● We capitalize to Land all expenditures necessary to get the land ready for its intended
● capitalized costs include:
○ purchase price of the land plus
○ closing costs such as fees for the attorney, real estate agent commissions, title,
title search, and recording fees
○ back taxes or other obligations
○ additional expenditure such as clearing, filling, and leveling the land, or even
removing existing buildings
○ Cash received from the sale of salvaged materials reduces
the total cost of land.
● improve the land by adding a parking lot, sidewalks, driveways, landscaping, lighting
systems, fences, sprinklers, and similar additions
● have limited useful lives (parking lots eventually wear out), and land has an unlimited
useful life, we record land improvements separately from the land itself.
● Administrative offices, retail stores, manufacturing facilities, and storage warehouses.
●The cost of acquiring a building usually includes realtor commissions and legal
fees in addition to the purchase price.
● Remodeling is apart of acquisition costs
● includes machinery used in manufacturing, computers and other office equipment,
vehicles, furniture, and fixtures.
●The cost of equipment is the actual purchase price plus all other costs necessary
to prepare the asset for use.
○ sales tax,
○ delivery insurance,
○ testing, and
○ even legal fees incurred to establish title.
● Rather than including recurring costs as part of the cost of the equipment, we expense
them as we incur them.
● purchase more than one asset at the same time for one purchase price
● The difficulty, though, is that the estimated fair values of the individual assets often
exceed the total purchase price
● oil, natural gas, timber, and even salt.
● We can distinguish natural resources from other property, plant, and equipment by the
fact that we can physically use up, or deplete,
● One of the most valuable intangible assets for many companies is their trademark or
● Companies acquire intangible assets in two ways:
○ They purchase intangible assets like patents, copyrights, trademarks, or
franchise rights from other companies.
○ They develop intangible assets internally, for instance by developing a new
product or process and obtaining a protective patent.
● We record purchased intangible assets at their original cost plus all other costs,
such as legal fees, necessary to get the asset ready for use.
● we expense in the income statement most of the costs for internally developed
intangible assets in the period we incur those costs
● expense all R&D costs as incurred.
● advertising costs are recorded as expenses and are reported in the income statement in
the period incurred.
● an exclusive right to manufacture a product or to use a process.
●When a firm purchases
a patent, it records the patent as an intangible asset at its
purchase price plus other costs such as legal and filing fees to secure the patent.
● contrast, when a firm develops a patent internally,
it expenses the research and
development costs as it incurs them
● an exclusive right of protection given by the U.S. Copyright Office to the creator of a
published work such as a song, film, painting, photograph, book, or computer software
● Accounting for the costs of copyrights is virtually identical to that of patents.
● a word, slogan, or symbol that distinctively identifies a company, product, or service
● intangible asset whose useful life can be indefinite.
● A firm can record attorney fees, registration fees, design costs, successful legal defense,
and other costs directly related to securing the trademark as an intangible asset in the
Trademark asset account.
● The advertising costs that help create value for the trademark are recorded as
● local outlets that pay for the exclusive right to use the franchisor company's name and to
sell its products within a specified geographical area.
● To record the cost of a franchise, the franchisee records the initial fee as an intangible
asset. Additional periodic payments to the franchisor usually are for services the
franchisor provides on a continuing basis, and the franchisee will expense them as
● It is recorded only
when one company acquires another company.
● is recorded by the acquiring company for the amount that the purchase price exceeds
the fair value of the acquired company's identifiable net assets.
Expenditures after acquisition
●We capitalize an expenditure as an asset if it increases future benefits. We
expense an expenditure if it benefits only the current period.