![]() ![]() Government grants may also include forgivable loans in situations where companies meet certain conditions.Īs the name implies, the loan does not need to be repaid. If these stipulations are not met, then the grants may need to be refunded by the company. Government grants may be in the form of a specific grant that includes specific requirements/stipulations such as employment levels or pollution control levels. The net method deducts the grant from the assets book value to arrive at the carrying amount of the asset, while the gross method records the asset at its gross value (full purchase price) and sets up the grant as deferred income. The accounting treatment used for grants is either the net method or the gross method. For several reasons, governments at all levels may choose to provide financial assistance to companies that engage in certain activities. Government Grantsįinally, another type of intangible asset is government grants. Companies can only have goodwill on their balance sheets if they have acquired another business. For example, if XYZ Company paid $50 million to acquire a sporting goods business and $10 million was the value of its assets net of liabilities, then $40 million would be goodwill. What this essentially means is the difference represents how much the buyer is willing to pay for the business as a whole, over and above the value of its individual assets alone. In accounting, goodwill represents the difference between the purchase price of a business and the fair value of its assets, net of liabilities. The main difference concerning goodwill, as compared to other intangibles, is that goodwill is never amortized. However, goodwill is still an intangible asset, treated as a separate class. Referring to the identifiable intangible asset definition mentioned earlier, goodwill does not meet the IFRS definition, as it is not identifiable/not separable. Thus, the yearly amortization expense for McRonald’s is $500,000. The patent, however, is amortized on the straight-line scale over its 50-year life. The trademark is not amortized, as it virtually has a perpetual life. What is McRonald’s amortization expense per year? However, the trademark can be renewed at a marginal cost. The second is a trademark worth $1,000,000 and with a useful life of 10 years, after which it expires. The patent expires and cannot be renewed. The first is a patent worth $25,000,000 and with a useful life of 50 years. Consequently, if an intangible asset has a useful life but can be renewed easily and without substantial cost, it is considered perpetual and is not amortized. If an intangible asset has a perpetual life, it is not amortized. Generally, intangible assets are simply amortized using the straight-line expense method. These assets are amortized over the useful life of the asset. While PP&E is depreciated, intangible assets are amortized (except for goodwill). Nonetheless, brand recognition and reputation are expected to generate good economic returns for the company in the future. While a company can sell its trademark, logos, and such, it can be difficult to separate good branding and reputation from a strong company. A company will record an impairment loss if it deems the goodwill’s value has decreased from its recorded book value.Īnother key unidentifiable asset is branding and reputation. However, it is instead tested for impairment regularly. Such an asset is not depreciated like PP&E. However, externally generated goodwill can be recorded as an asset when a company acquires or merges with another company and pays above its fair value. ![]() Internally generated goodwill is always expensed and never recorded as an asset. The most commonplace unidentifiable intangible asset is goodwill. Unidentifiable intangible assets are those that cannot be physically separated from the company. Software and other computer-related assets outside of hardware also classify them as identifiable intangible assets. They are assets such as intellectual property, patents, copyrights, trademarks, and trade names. ![]() Identifiable intangible assets are those that can be separated from other assets and can even be sold by the company. Identifiable and Unidentifiable Intangible Assets They can be separated into two classes: identifiable and non-identifiable. They form the second largest category of long-term assets, behind number one – PP&E. Intangible assets lack a physical substance like other assets such as inventory and equipment. As a long-term asset, this expectation extends for more than one year or one operating cycle. Like all assets, intangible assets are expected to generate economic returns for the company in the future. According to the IFRS, intangible assets are identifiable, non-monetary assets without physical substance. ![]()
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