1. Intangible Capital Assets

2. ACCOUNTING FOR INTANGIBLE ASSETS
In general, accounting for intangible assets parallels the accounting for capital assets.
Intangible assets are:
1. recorded at cost;
2. written off over useful life in a rational and systematic manner;
3. at disposal, net book value is eliminated and gain or loss, if any, is recorded.

3. AMORTIZATION Amortizable intangible assets
Have defined lives
Allocation of the cost to expense over the shorter of
Useful (economic) life
Legal life
Straight-line method of amortization used

4. TYPES OF INTANGIBLE ASSETS
Patents
Copyrights
Trademarks and Trade Names
Franchises and Licenses
Goodwill
Research and Development Costs

5. PATENTS
Exclusive right to manufacture, sell or control granted for 20 years
Legal costs of protecting a patent in an infringement suit are added to the Patent account and amortized over the remaining life of the patent

6. COPYRIGHTS
Copyrights are granted by the federal government giving the owner the exclusive right to reproduce and sell artistic or published work
Copyrights extend for the life of the creator plus 50 years

7. TRADE MARKS/NAMES
Word, phrase, jingle or symbol that distinguishes or identifies a particular enterprise or product
If indefinite life, do not amortize. Test for impairment

8. FRANCHISES
Contractual agreement under which the franchiser grants the franchisee the right
To sell certain products
To render specific services or to use certain trademarks or trade names, usually within a designated geographic area

9. LICENSES
Operating rights permit the enterprise to use public property in performing its service (i.e. the use of airwaves for radio or TV broadcasting)

10. GOODWILL
Goodwill represents favourable attributes that relate to a business enterprise
Record only in an exchange transaction that involves the purchase of an entire business
Goodwill equals the excess of cost over the fair market value of the net assets (assets less liabilities) acquired
Goodwill is not written off as it has an unlimited useful life. It must be tested regularly for impairment.

11. Goodwill Example
Johnson Company buys out its closest competitor, Mercury Limited, Mercury is known for its excellent products, stellar management, and top notch customer service.
Purchase Price: $3, 400,000
Value of Mercury Limited’s Net-Assets: $2,800,000
DR CR
Dec 31 Assets of Mercury Limited 2,800,000
Goodwill ,000
Cash 3,400,000

12. RESEARCH AND DEVELOPMENT COSTS
Research costs–record as an expense when incurred
Development costs–capitalize if associated with an identifiable, feasible product. Otherwise, expense

13. FINANCIAL STATEMENT PRESENTATION
In the balance sheet, property, plant and equipment, natural resources, and intangible assets are often combined under the heading Capital Assets.
There should be disclosure of the balances in the major classes of assets and accumulated amortization of major classes of assets or of assets in total.
The amortization methods used should be described and the amount of amortization expense for the period disclosed.

14. Sales Total Assets Turnover Income Total Assets Assets
Capital Assets Ratios
The ratio that shows how efficiently a company uses its assets to generate sales is the asset turnover ratio.
The ratio that shows the profitability of assets used in the earnings process is the return on assets.
Net Average Assets
Sales Total Assets Turnover  =
Net Average Return on
Income Total Assets Assets  =