Intermediate accounting 10th edition kieso

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Seller: a2zbooks , Burgin, KY, U. New - Softcover Condition: New. Quantity: 6. Condition: New. Still in Shrinkwrap Multiple copies available this title. The calculation of accumulated amortization is as follows.

Even though the franchise is perpetual the company believes it will generate future economic benefits for only 25 years. If classified as indefinite life, management should review to ensure that conditions and circumstances continue to support the indefinite life assessment.

This assessment is required on an annual basis. If there is a change in the useful life assessed, it will be accounted for prospectively as a change in estimate. EXERCISE Continued e A longer estimate of useful life as was assumed in part b results in lower amortization expense on the income statement and higher carrying amount on the balance sheet each period, compared to a shorter estimate of useful life as was assumed in part c.

If the trade name is estimated to have an indefinite life, no expense is recorded each period and the carrying amount of the trade name will be equal to original cost, unless the trade name is determined to be impaired.

The estimated useful life of the trade name should be based on neutral and unbiased consideration of the factors discussed in part a. A potential investor in Kara should be aware that the estimate of useful life requires a degree of professional judgement, and that the determination of useful life can have a material effect on the balance sheet as well as the income statement.

As such, they would be charged to an intangible asset account such as Product Development Costs that would be amortized over the periods benefitting. If these costs were incurred after the six development phase criteria for capitalization were met, they would not be capitalized because they are not direct costs of creating, producing and preparing the asset to operate in the way intended by management. These costs are not eligible for capitalization since the six development phase criteria for capitalization are not met.

Payable, etc As such, costs incurred before the future benefits are reasonably certain i. Payable, etc. PrideTalk would have additional options under IFRS to use the revaluation model to measure intangible asset s after acquisition; however this would only be possible if there is an active market for the intangible asset s.

In addition, under IFRS, an assessment of estimated useful life is required at each reporting date. Under IFRS, costs associated with the development of internally generated intangible assets that meet the six development phase criteria for capitalization are capitalized no policy choice.

The journal entry if the accounting policy was to expense all research and development costs would be as follows: Research and Development Expense … Alternatively, if revenues are expected to be uneven over the eight years, it might be preferable to amortize the costs on an activity basis — either on a per unit basis or based on the revenues generated relative to the total revenues expected. If there are any indicators of impairment, carrying amount of the asset is compared to undiscounted future net cash flows of the asset, to determine if the asset is impaired.

Therefore, if the asset was considered impaired carrying amount not recoverable , the net realizable value as an indicator of what its fair value might be would be valuable information in measuring the amount of the impairment loss. If there are any indicators of possible impairment, the asset is tested for impairment. December 31, Amortization expense Revaluation Surplus OCI To verify that there is an active market for an intangible asset, an auditor would verify that the items are homogenous interchangeable , that there is a good supply of willing buyers and sellers, and that the prices are available to the public.

In this case, the taxi licences are interchangeable e. Assuming that the prices of the taxi licences are freely available to the public e. Loss on Impairment 55, Cr. The reversal amount, however, is limited. The specific asset cannot be increased in value to more than what its carrying amount would have been, net of amortization, if the original impairment loss had never been recognized.

However, the licence cannot be increased in value to more than what its carrying amount would have been, net of amortization, if the original impairment loss had never been recognized i. In any case, reversal of impairment loss is not permitted under ASPE.

The impairment test is not affected by fair value of the licence. The specific asset cannot be increased in value to more than what its carrying amount would have been, if the original impairment loss had never been recognized.

Loss on Impairment 25, Cr. The licence cannot be increased in value to more than what its carrying amount would have been, if the original impairment loss had never been recognized i. However, the test differs from the test for limited-life assets.

A fair value test is used, and an impairment loss is recorded when the carrying amount exceeds the fair value of the intangible asset. Loss on Impairment , Cr. Accumulated Impairment Losses - Licences , b Under ASPE, the recoverable amount refers to undiscounted future cash flows, which does not affect the impairment test for indefinite-life intangible assets.

Reversal of impairment losses is not permitted under ASPE. The regular amortization calculation should be done first, prior to testing for impairment. The amortization expense would be shown as part of operating expenses or as part of a product cost whereas the impairment loss would be shown as part of other expenses and losses. Amortization expense is a recurring annual expense whereas impairment loss is only recorded when the asset is impaired.

The specific asset cannot be increased in value to more than what its carrying amount would have been, net of accumulated amortization, if the original impairment loss had never been recognized. The journal entry would be: Accumulated impairment Losses - Copyright Current standards require the excess to be recognized as a gain in net income.

However, this cannot be done without a thorough reassessment of all the variables, values, and measurement procedures used that resulted in this gain. Because these future receipts are not contractual in nature, a considerable degree of uncertainty surrounds their measurement.

While both parties agree on the amount of excess earnings, they disagree as to the certainty of the continuance of such excess earnings.

Items involved are advertising, research and development costs, goodwill, legal costs, pre-operating costs and promotional costs.

Problem Time minutes Purpose—the student determines the cost and amortization of a franchise, patent, and trademark and shows how they are disclosed on the balance sheet. The student prepares a schedule of expenses resulting from the intangibles transactions. Also covers IFRS. Problem Time minutes Purpose—to provide the student with a comprehensive problem in accounting for intangible assets.

The student is required to prepare an eight-column work sheet to include a trial balance, adjustments, a balance sheet, and an income statement.

This is an excellent problem to review the accounting procedures for all types of intangibles in a realistic manner. Problem Time minutes Purpose—to provide the student with an opportunity to appropriately reclassify amounts charged to a single intangible asset account.

The student must also be alert to the fact that several transactions require that an adjustment of Retained Earnings be made.

The problem provides a good summary of accounting for intangibles. The problem calls on the student to determine whether costs incurred are properly capitalized or expensed. Problem Time minutes Purpose—to provide the student with an opportunity to apply the revaluation model using the asset adjustment method as well as the proportionate method, and to compare both methods. Problem Time minutes Purpose—to provide the student with an opportunity to prepare the intangible assets section of the balance sheet including an indefinite-life trade name, a limited-life copyright and goodwill.

Impairment of the intangible assets must also be assessed and recorded. A good review of impairment of the three types of intangible assets. Problem Time minutes Purpose—to provide the student with an opportunity to determine the useful life of various intangible assets.

Examples must be provided for testing for impairment of the various intangibles. The problem deals with applying the criteria for determining useful life and whether assets have an indefinite useful life by applying the theory. Problem Time minutes Purpose—to provide an opportunity for the student to determine the amount of goodwill included in the purchase price of a business. The student must then test goodwill for impairment assuming two different fair values for the division. Intermediate Accounting, 17e Rockford Practice Set.

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