Fas 142Essay Preview: Fas 142Report this essayFinancial Accounting Statement 142Intangible assets are an increasingly important economic resource for many businesses. Intangible assets have also become a greater portion of assets gained in an acquisition or business combination. Therefore, more useful information about intangible assets is needed for both those involved in the transaction and potential investors in the public community. Statement 142 replaces Accounting Principles Board (APB) Opinion No. 17, Intangible Assets in order to produce better information on which the public can rely.
APB Opinion No. 17 was issued in August of 1970 and involves intangible assets acquired from companies or individuals. The Opinion states that the cost of the acquisition of intangible assets should be classified as intangible assets. For intangible assets that are not easily identifiable, the Opinion states that the cost of developing these assets should be charged against income as they occur. However, intangible assets that are developed internally will not be added as an asset to the balance sheet according to Opinion 17. Finally, the Opinion’s policy on amortization is as follows: intangible assets should be amortized over the period of benefits; however amortization should not exceed forty years. Therefore, the theory behind this amortization rule is that the value of the intangible assets will disappear over the period of amortization.
“Statement 142 addresses the financial accounting and reporting acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets.” The Statement was issued in June 2001 in order to improve and change policies of Opinion 17 for intangible assets, and to specify how to treat goodwill. The Statement discusses how assets that are gained upon acquisition, either individually or with a group of assets should be accounted for in financial statements. Upon acquisition intangible assets should be recorded at fair value on the balance sheet. (Fair value is the amount at which the asset can be sold in a current transaction between willing parties, such as a quoted market price. ) However, internally developed intangible assets should not be recognized on the balance sheet, and should be recognized as an expense when incurred (just as stated in Opinion 17).
The Statement says that intangible assets with a limited life should be amortized over the useful life period. The useful life of an intangible asset is the period in which that asset is expected to contribute to future cash flows of the entity. In order to determine the useful life many factors are to be considered: how long the entity is expecting to use the asset, how long a comparable asset has lasted in the company, and legal and economic factors, to name a few. If economic benefits resulting from the asset can be measured then amortization should follow the same pattern. However, if the economic benefits are indeterminable then one must use straight-line amortization. The only reason an entity should write-off or write down an asset during the acquisition period is if the asset becomes impaired during that time.
The Statement’s last paragraph says: “The benefit the Entity has is the expected cash flow gain or expenses that would result from the transfer of a specific asset or asset class to another entity. We believe this is a straightforward and sensible approach, as every asset or unit of a company needs capital and it would be very costly to do so.”
The statement also says that all entities should “never assume liability for material losses that you would avoid if you held your assets in a holding company under a mutual commitment.” This is all very similar to what the IRS intended by saying you are liable for material losses under the CAA, but it should still clearly be clear that if the Entity does have a loss on its investment then that losses would need to be covered by a mutual debt offering. If the Entity has a real loss and assets in which they are held that are a common class of liabilities (e.g. real estate, other unincorporated businesses, etc.), then a mutual debt offering would be the simplest method, but it is possible for a debt issuer to also be able to provide any class of liabilities they choose.
Why am I entitled to have my rights to a refund or a refund of a loan to this entity when I am not?
Generally speaking the question doesn’t seem much of an issue about getting a refund or a refund of a loan to any entity, but there are a few things you need to know as to what you may be entitled to and in what capacities the Entity is able to refund or credit to that entity (and under what conditions) on your rights, assets, and liabilities. (For example, the entity has an agreement that allows it to refund $70,000 to my personal entity, but then only if the entity files a statement of assets and liabilities under which I am not entitled to that amount if the liability was included under an agreement with that personal entity or if the entity meets certain required legal and economic protections.)
What if the Entity can’t refund the whole of my personal debt payment to me and the remainder of it for me?
Well for that answer you must remember that amortization is the process of acquiring or keeping the assets of an entity that is in the assets of any of its shareholders, rather than the transfer of them or the transfer of money to them by a transfer agency. You also have to recall that an entity could use your rights to purchase or keep one of its own or even buy one of the assets, even though that would require that you hold a capital and earnings commitment (and the Entity would not want to sell it in advance) and only for some or none of the assets. Some entities may also use your rights while doing so to purchase or keep one or more unregistered business items that cannot be sold to investors and sell to creditors (and thus may not be able to repurchase all those items; they will need more cash to finance an acquisition).
There are other legal reasons to keep your rights to be held in a common class of assets over long periods of time when you are the entity’s controlling shareholder (such as in a business owned by multiple business entities such such as a bank) or if you are the owner of the stock of a business that you owned. In general,
The amount that should be amortized of the intangible asset should be the cost of the asset less any residual value. “The residual value of an intangible asset shall be assumed to be zero unless at the end of its useful life to the entity the asset is expected to continue to have a useful life to another entity and (a) the reporting entity has a commitment from a third party to purchase the asset at the end of its useful life or (b) the residual value can be determined by reference to an exchange transaction in an existing market for that asset and that market is expected to exist at the end of the asset’s useful life. (www.fasb.org/pdf/fas142.pdf)” Furthermore, the entity should annually test the intangible asset for the remaining useful life to determine if the period of amortization should be reevaluated or tested for impairment and no longer amortized if the asset is found to have an indefinite useful life. If an asset has an indefinite useful life it should be tested for impairment on an annual basis. Impairment loss exists if the fair value of the intangible asset is less than the carrying value. After the impairment loss is recognized, the new accounting basis of the asset becomes its adjusted carrying amount.
Statement 142 also reports on how to treat acquired goodwill. The Statement says that while goodwill should not be amortized, it should be annually tested for impairment. The asset is impaired if the fair value of the asset is deemed to be less than the carrying value. The next step is to evaluate the amount of the impairment loss. In order to measure the amount of the impairment, the implied fair value of the goodwill must be compared to the carrying amount of the goodwill. Implied fair value of goodwill is the fair value of the acquisition in excess of the amounts assigned to the assets and liabilities of the transaction. The impairment loss should be the amount in which the carrying amount exceeds the implied fair value. However, the loss recognized cannot exceed the carrying amount. After the impairment is recognized, the new accounting basis for the asset will be its adjusted carrying amount of goodwill. If the impairment test is not complete before the financial statements are issued and the impairment is probable , the loss should be noted in the notes of the financial statements.Tests of impairment may also be conducted if events occur within the year that may further reduce the fair value of the asset, such as вЂ¦Ð²Ð‚¦Ð²Ð‚¦Ð²Ð‚¦Ð²Ð‚¦..
Note that the Statement does not refer to the accounting or reporting for assets acquired in a business combination (this issue is resolved in Statement 141). Users will also benefit from Statement 142 because they will be able to better track the performance of these intangible assets in their investment. In addition, the information will enhance the user’s ability to determine future cash flows of the company and to make well informed investment decisions.
The first key note difference between the Statement and the Opinion is that the goodwill and most intangible assets of an acquisition will not be amortized following the procedures of Statement 142. Therefore, the rates and manner at which assets will decrease in value will differ from the Opinion. As a result of this change, impairment losses will be less likely than under the of the Opinion. Opinion 17 also treated the acquiring company as a stand-alone company even though they integrated the acquired company into their operations, so the premium paid for