Introduction
Although intangible assets lack physical substance, some financial experts say that intangible assets are key drivers in value and competitive advantage. Items that are commonly classified as intangible assets include trademarks, patents, franchises, copyrights, and goodwill. Even though intangible assets are becoming more popular, intangible assets are under much scrutiny. Since the inception of FASB standard no. 142, Goodwill and Other Intangible Assets, there has been much debate regarding when intangible assets should be recognized. GAAP’s different recognition standards for intangible assets coupled with the different accounting treatments in international standards impede on financial statement …show more content…
ASC 350-30-30-1 states that acquired intangibles are to be initially recorded at their fair value. In the case of internally developed intangible assets, research and development costs are generally expensed as incurred. U.S. GAAP allows for an exception to this general rule for costs incurred for software development: Software is capitalized as soon as it becomes technologically feasible. Goodwill is a unique intangible asset that can only be acquired through the purchase of an existing company. Under ASC 805, goodwill is initially measured as the consideration exchanged (such as cash or outstanding stock) less the fair value of the net identifiable assets …show more content…
The excess book value over fair value is the amount recorded in the books as an impairment loss. Once an impairment loss has been recognized, the new cost basis for the intangible asset is its written-down book value. This adjusted book value is the basis for which the intangible asset will be amortized over its remaining useful life. GAAP requires firms to investigate an asset for a potential impairment loss when significant changes in circumstances and events arise that may cause the book value of an asset to become unrecoverable. Some examples of circumstances that may indicate an asset impairment loss are substantial decreases in market price and adverse changes to the business climate. Finite-lived assets are only tested when certain triggering events arise while indefinite-lived intangible assets (other than goodwill) are at least tested annually. GAAP does not require annual testing for Goodwill but a qualitative assessment may be performed to determine the likelihood of goodwill