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Ebook Financial accounting and reporting (4/E): Part 2

(BQ) Part 2 book “Financial accounting and reporting” has contents: Intangible fixed assets, business combinations, statement of cash flows construction, analysis of the statement of financial position/balance sheet, ratio analysis, financial analysis and beyond, and other contents. | www.downloadslide.net CHAPTER 8 INTANGIBLE FIXED ASSETS LEARNING OBJECTIVES After studying this chapter, you will understand: 1 That intangible fixed assets are usually divided in three categories: research and development (R&D), goodwill and other intangible assets. 2 That intangible fixed assets may represent a significant proportion of total assets. 3 That intangible fixed assets raise issues of definition, recognition and recording of their change in value. 4 How the concept of goodwill is defined and what it represents. 5 That some accounting principles favor recognition of intangible fixed assets while others oppose it. 6 What the criteria are for recognition of an intangible fixed asset. 7 How accounting handles changes in value of intangible assets after their initial recognition. 8 What the conditions are for appropriate R&D capitalization. 9 What the arguments are in favor and against R&D capitalization. 10 What accounting rules apply to reporting development of computer software. As defined in Chapter 7, intangible (fixed) assets are long-lived (long-term) assets that lack physical substance and their acquisition and continued possession represent rights to future economic benefits. Given there are no known intangible current assets, we will refer to intangible fixed assets as ‘intangible assets’ in this chapter and the rest of the book. Intangible assets comprise goodwill (essentially the premium paid over the fair value of acquired assets, reflecting the expected stream of future economic benefits – see section 1.2.2 for a more precise definition), patents, franchises, licenses, trademarks, brands, copyrights, etc., and, if certain conditions are met, capitalized R&D. The valuation and reporting of intangibles has been controversial and a source of debate for many years, mainly because it is often very difficult to objectively define and value future economic benefits derived from such assets. How can one establish an ‘objective’ .