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1. TOPIC: INTANGIABLE ASSETS

2. INTANGIBLE ASSETS

3. CONTENTS Types of assets Intangible assets Characteristics of intangible assets Accounting treatment Amortization Goodwill and types Estimating Internally generated goodwill Goodwill impairment Patents Copy rights Franchise Trade marks Trade names and secret formulas Research and development costs Deferred charges Conclusions

4. Types Of Assets .There are two categories of assets in the balance sheet of any company: Physical Assets Non physical Assets

5. INTANGIABLE ASSETS Intangiable Asstes are those asseta which cannot be touch and feel and ,see are calledcalled intangible assets in other words ,all those assets which don't have any physically existencece arce are known as inatangiable assets Examples of Intangible assets

6. Characteristics Non current ,non monetary assets. No physical Subtance They are valued at cost They are beneficial to the firm for many accounting periods.

7. Accounting treatment of intangiable assets It involes: Mesurement and capitalization of the costs at which they were acquired .capitalization is the process in which costs to acquire an assets are icluded in the price of an assets . Amortization of their costs over te shorter of the two :the legal life or their economic life.

8. AMORTIZATION It is the systamatic write off expenses of the cost of an intangiable assets over its useful , it is not indefinite It is the parallel of depreciation .The sright line method is most commomly used. They will not benefit the firm forever. Intangible assets can be amoritized for a maximum period of 40 years.

9. GOODWILL It is the present value of future earnings in excess of the normal return on net identifiable assets. Types of Goodwill There are two types of goodwill .Purchased Goodwill. . Internally generated Goodwill

10. Estimating internally Generated Goodwill Two methods are used Value the business Capitalize the amount

11. PATENTS A patent is an intangible assets , issued by the federal government, giving its owner the exclusive legal right to the commercial benefits of a specified product or process. They are generated internally or can be purchased A patent does not have inherent protection from infrengement In the U,S the U,S patents office issues patents for 17 yesrs . However , the economically useful life maybe much shoter if technological developments render the product or process obsolete,

12. COPYRIGHTS A copyrights is an intangiable assets that gives its owner an exclusive legal right to the reproduction and sale of a literary or artistic work. It is granted by the federal government and lasts for the life of the creator plus 50 years . Their legal life s very small but the economic life is limited to the period for which a commercial market exists for the publication . Copyrights are amortized over a short period of time . If the fee to establish a copyright is minimal it is treated off as expense

13. FRANCHISE A franchise is a right granted by a company or government unit to conduct a certain type of business in a specific geograpical area . When the cost of the franchise is small it maybe chrged immediately to expense or amortized over a short period such as 10 yesrs When the costs is material amortization should be based on the life of the assets .

14. Trade marks,Tradenames and Secreat Formules Trade marks, Trade Names and secret Formulas are means used by companies to build and ensure consumer acceptance for new products. A trademark is any word, na or symbol that is used by a manufacturer or merchant to identify their goods as distinguished from those made or sold by the others. A trade name is a registred business name used by a company to identify itself when provinding products or servies. If a trademark or brand name is purchased,the cost maybe substantial. Such cost should be capitalized and amortized.

15. Organization Costs Organizing a corporation demends a considerable amount of time , effort and cost Those involved ,need to be compensated All these expenditures are expected to benefit future revenue. Logically, therefore, these costs should be treated as an assets. Theoretically, the economic life of these costs extends as the corporation remains a going concern. Despite that, companies amortize these costs over 5 years.

16. Examples Research Expenses to find a cure / medicine for diffeernent disease Expenses incurred an activities aimed at obtaining a new knowledge Development Construction of pilot plant projects Expenses an the development of new drugs

17. Deferred chrges Intangible assets such as moving costs ,plant rearrangement costs , name lists and film rights , are grouped under deferred charges. Deferred chrges are expenditure that will provide benefits beyond the current year and will be written off to expense over their useful economic lives. For example the costs incurred in issuing bonds for funds and those incurred for mach

18. Research and Development Costs According to International Fiancing Reporting Standars “ research is original and planned investigtion undertaken with the prospect of gaining new scientific or technical knowledge and understanding “. Development is the application of reserch findings or other knowledge to a plan or design for the production of new substantially improved materials ,devices , prodcts ,processes, systems or services before the start of commercial production or use Research and development costs are expenditures incurred in discovering, planning ,desiging and implementing a new product or process.

19. CONCLUSION Itangiable assets are non physical, non monetary assets .E.g goodwill Patents Costs are capitalized and amortized over the shorter of their economic or legal life. Amorization is the parallel of depereciation fotr intangiable assets. Best value found when purchased from another Internally generated intangiable assets are not considered ,which causes financial statement to depict a false picture.

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