what are examples of legal rights and identifiable assets and how are they accounted for?
these types of intangibles include: patents, copyrights, trademarks, franchises, leasehold improvements and licenses.
- Patents- costs incurred to legally protect product and process ideas resulting from R&D are not part of it but are instead a form of legal right known as a patent. Some important points with patents:
- -Capitalize cost of obtaining legal protection
- -include cost of successful defense in court
- -unsuccessful defense is expensed
- -Max 20 year life, but use shorter legal life or useful life.
Copyrights-protection of artistic works, include books, recording, and computer software. The copyright period is for the life of the creator plus 70years, but the chosts should be amortized over its useful life.
Trademarks- exclusive use of an identifying name for a product or process. External acquisition costs are amortized over their useful life. Idefinite number of renewals for periods of 10years each.
Franchises- Operation of a business unit under contractual arrangements with another party.
*All similarily recorded to patents. With defense of intangible to be capitalized, however they adjust on what is amortized over what.
Leasehold Improvements- leasehold improvements should be capitalized and amortized over the benefit period. This will be the shorter of the: useful life of the improvements or legal life of the lease, including extensions that are reasonably assured.
All these intangibles should be amortized the same cost less residual equals the amount amortized and they all should be tested for impairment annually. The life used to amortize should usually be the shorter alternative to keep conservatism in check.