This question is about reporting of intangible assets on balance sheets. Is it so that all companies {If not all then public companies} are required to report their intangible assets on their balance sheet. If this is the case, does this mean every year they must identify all their individual intangibles, (eg trademarks, patents, etc) and then conduct a valuation of them?
No. intangibles get recognized when you have an acquisition. internally-generated intangibles wont be found on the financials
Mobius Striptease Wrote: ------------------------------------------------------- > No. intangibles get recognized when you have an > acquisition. internally-generated intangibles wont > be found on the financials That’s goodwill, intangible assets are a separate line item and do not originate from acquisitions but from identifiable transactions I.e. registering a patent. The same annual impairment test is used with both I am not entirely sure but I think some intangibles have a limited life and are subject to amortization.
bodhisattva Wrote: ------------------------------------------------------- > Mobius Striptease Wrote: > -------------------------------------------------- > ----- > > No. intangibles get recognized when you have an > > acquisition. internally-generated intangibles > wont > > be found on the financials > > > That’s goodwill, intangible assets are a separate > line item and do not originate from acquisitions > but from identifiable transactions I.e. > registering a patent. > > The same annual impairment test is used with both > I am not entirely sure but I think some > intangibles have a limited life and are subject to > amortization. we’ve got some AF CPAs who can weigh in with authority, but I am fairly certain that intangibles will be recognized in an acquisition just like goodwill. if the acquired entity has identifiable intangibles, they’ll go on the books first and only then goodwill, if theres room left. also if you develop some technology internally and file a patent protection, i dont think you’ll suddenly put some intangible value on the books. you need to acquire the technology
whenever a company purchases an asset, could very well be a company, at more than its book value the difference goes to goodwill
yes intangible assets are a separate line item on the balance sheet. They are non-physical assets (brands/patents/customer lists etc) that have been acquired by the company. They are amortized. You cannot record an internally developed intangible, only those that are acquired. So you will not see an intangible on a company that has not taken over another company. Goodwill is another separate item on the balance sheet and is not amortized (since 2001). It is the excess of the purchase price over the fair market value of assets acquired by the company. Goodwill is created only after all identifiable assets (patents, licences) have been assigned fair market value. Goodwill will sometimes get written down but never written up. Acquired assets that had generated goodwill need to be tested annually for impairment (loss of value). If an asset is determined to be impaired, goodwill is adjusted down to better reflect market value. Writedowns are expensed through the income statement and imply that a company overpaid for an asset.
Muddahudda Wrote: ------------------------------------------------------- > yes intangible assets are a separate line item on > the balance sheet. They are non-physical assets > (brands/patents/customer lists etc) that have been > acquired by the company. They are amortized. You > cannot record an internally developed intangible, > only those that are acquired. So you will not see > an intangible on a company that has not taken over > another company. > > Goodwill is another separate item on the balance > sheet and is not amortized (since 2001). It is the > excess of the purchase price over the fair market > value of assets acquired by the company. Goodwill > is created only after all identifiable assets > (patents, licences) have been assigned fair market > value. Goodwill will sometimes get written down > but never written up. > > Acquired assets that had generated goodwill need > to be tested annually for impairment (loss of > value). If an asset is determined to be impaired, > goodwill is adjusted down to better reflect market > value. Writedowns are expensed through the income > statement and imply that a company overpaid for an > asset. all of this is correct except the fact you mentioned that all intangibles stem from acquiring other companies because there are some small exceptions. Internally-developed software would fall into this category and is subject to being capitalized as well.
SOSPSOPSOSPOSSOISPISPISOIOISISOSISOISOPSIPISOISPISPSI - For intangible assets, just finish on their back. Problem solved.
the goodwill stuff we all know but as for patents, trademarks and other intangibles you DO amortize them as long as they have a definable useful life (most patents do while trademarks may not). the only reason goodwill and other intangibles are not amortized is because they do not have a definite useful life. wake2k and Muddahudda got it right
Muddahudda Wrote: ------------------------------------------------------- > yes intangible assets are a separate line item on > the balance sheet. They are non-physical assets > (brands/patents/customer lists etc) that have been > acquired by the company. They are amortized. You > cannot record an internally developed intangible, > only those that are acquired. So you will not see > an intangible on a company that has not taken over > another company. Not so. According to IAS 38 (I am assuming the OP is in Europe), five ways intangible assets arise; 1. Separately acquired intangible assets 2. Intangible assets acquired in a business combination 3. Internally generated intangible assets 4. Internally generated goodwill. 5. Intangible assets acquired by way of a government grant. An internally generated intangible asset arising from development shall be recognized if an entity can demonstrate criteria set out in the standard with regard to feasibility and ability to sell. > Goodwill is another separate item on the balance > sheet and is not amortized (since 2001). It is the > excess of the purchase price over the fair market > value of assets acquired by the company. Goodwill > is created only after all identifiable assets > (patents, licences) have been assigned fair market > value. Goodwill will sometimes get written down > but never written up. Internally generated goodwill is not recognised as an asset. > Acquired assets that had generated goodwill need > to be tested annually for impairment (loss of > value). If an asset is determined to be impaired, > goodwill is adjusted down to better reflect market > value. Writedowns are expensed through the income > statement and imply that a company overpaid for an > asset. After recognition and in subsequent years, an entity uses cost or revaluation method to report IA on financial statements. All intangible assets are reviewed for impairment whenever facts and circumstances indicate their carrying value may not be recoverable.
Cheers guys. All has been very helpful, and I got it straight now. Nupps, I’ll also take your advice on board!
FYI goodwill is still amortized for tax purposes which matters cause you get a tax benefit from it. at least in the US