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Understanding Intangible Assets and Amortization

The document contains 10 questions about intangible assets including their differences from tangible assets, sources of intangible assets, the difference between amortization and depreciation, factors in determining useful lives of patents and copyrights, how goodwill and trademarks are valued and recorded, and presentation of intangible assets on a balance sheet.

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43 views2 pages

Understanding Intangible Assets and Amortization

The document contains 10 questions about intangible assets including their differences from tangible assets, sources of intangible assets, the difference between amortization and depreciation, factors in determining useful lives of patents and copyrights, how goodwill and trademarks are valued and recorded, and presentation of intangible assets on a balance sheet.

Uploaded by

gech95465195
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd

Active Recall Questions:

1. What are intangible assets, and how do they differ from tangible assets?

2. Name three sources from which intangible assets may arise.

3. Explain the difference between amortization and depreciation.

4. What factors should be considered when determining the useful life of a patent?

5. Give an example of a copyright and describe its typical useful life.

6. Define trademarks and trade names, and explain how their costs are amortized.

7. What is goodwill, and why is it challenging to determine its value?

8. When is goodwill recorded on a company's balance sheet?

9. Why are research and development costs sometimes recorded as expenses immediately?

10. How are intangible assets typically presented on a balance sheet?

Answers:

1. Intangible assets are rights, privileges, and competitive advantages that result from the ownership of
long-lived assets without physical substance. Unlike tangible assets, they cannot be seen or touched.

2. Intangible assets may arise from government grants (patents, copyrights, trademarks), acquisition of
other businesses (goodwill), and private agreements (franchises, licenses).

3. Amortization is the allocation of the cost of an intangible asset to expense over its useful life, while
depreciation is the allocation of the cost of a tangible asset over its useful life.

4. The useful life of a patent should consider factors like obsolescence, inadequacy, and economic
effectiveness, but it cannot exceed its legal life of 17 years.

5. An example of a copyright is the exclusive right to reproduce and sell a book. Its useful life typically
extends for the life of the creator plus 50 years.

6. Trademarks and trade names are symbols or phrases that identify a business or product. Their costs
are amortized over the shorter of their useful life or 40 years.

7. Goodwill is the value of favorable attributes related to a business, but it's challenging to determine
because it's specific to the business as a whole and involves subjective judgments.

8. Goodwill is recorded only in an exchange transaction involving the purchase of an entire business,
where it represents the excess of the purchase price over the fair market value of net assets acquired.
9. Research and development costs are sometimes expensed immediately because of difficulties in
assigning costs to specific projects and uncertainty about future benefits.

10. Intangible assets are typically presented separately from tangible assets on a balance sheet, with
specific categories like patents, copyrights, and trademarks listed along with their respective values.

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