Intangible assets

CFA Level I
#1

The treatment of intangible assets on the B/S seems to be very subjective. I did some research and it seems some firms prefer not to disclose the value of intangible assets, including goodwill while others will explicitly record the value of all their intangible assets, including IPs, etc. Questions: 1) Is it proper to assume the accounting entries for intangible assets will be recorded under noncurrent assets, and an equal amount in shareholder’s equity? 2) Is the choice not to declare the net worth of intangible assets allowed under both GAAP and IFRS? Thanks.

#2
  1. Intangible asserts are usually provide future economic benefits beyond a particular financial year, that’s why they will not appear as current assert, they are considered as long lived asserts. Cost of accusation depends on how the intangible assert was acquired i.e. A) purchased in situation other than business combination, B) developed internally and C) acquired in a business combination. Cost would be expensed or capitalized depends on the accounting method (US GAAP and IFRS) used. 2) Determining the value of the intangible assert is a little tricky, cost can be used to influence the NI. A lot care must be taken when valuing a intangible assert.
#3

all companies must disclose and report intangibles, but valuing a company that has a significant amount of goodwill on the balance sheet can be misleading to someone analyzing the value of said company.

#4

Thanks guys. >>all companies must disclose and report intangibles<< This is interesting. Is there a reliable source that confirms the above statement. Schweser state that “not all Intangible assets are reported on the B/S” (Schweser, SS9, page 171). What could they possibly mean? Thanks.

#5

it could mean that they are expensed immediately if they provide no future benefit or other various criteria beyond the scope of what you need to know, but intangible assets could be goodwill, copyrights, patents, internally-developed software, generally reported at amortized cost excluding goodwill

#6

I think Schweser is referring to internally generated goodwill like the company’s brand image, reputation etc.

#7

Yes, I think treating the intangibles as an immediate expense could be one possible explanation…but I am not sure how popular this is given the fact that most intangible assets (both with finite and infinite lives) tend to be beneficial thus capitalized. Are there examples of intangibles which can be immediately expensed? I would have thought the likes of Coke, Xerox, Microsoft all do declare the intangible asset value of their brand image, reputation, etc. I do understand that the subject is really out of scope for the level 1 exam and I appreciate you guys’ responses, but this stuff is quite important in the long run. I remember doing a case study where Nokia once claimed some > $100B in intangible assets when their physical assets were only worth around ~$6B in their 2000 10K. Unraveling that 100B on how they subclassify certain intangiles would be a head spinner!