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Chapter 12: Question 6 (page 637)

What are factors to be considered in estimating the useful life of an intangible asset?

Short Answer

Expert verified

The useful life of identical assets varies for each user and is determined by the asset’s age, frequency of usage, business climate, and asset repair strategy. Expected technology advancements, legislative changes, and economic changes are all variables that impact an asset’s useful life.

Step by step solution

01

Definition of Intangible asset

An identified non-monetary item with no physical substance is known as an intangible asset. It is identifiable when an asset is separable or comes from contractual or other legal rights.

02

Factors to be considered in estimating the useful life of an intangible asset

1.) The entity’s anticipated use of the asset.

2.) The predicted useful life of another asset or a group of assets could be linked to the intangible asset’s useful life.

3.) Any legal, regulatory, or contractual constraints that might limit the usable life of the item.

4.) Any legal, regulatory, or contractual arrangements that allow the asset’s legal, contractual life to be renewed or extended without incurring significant costs.

5.) Obsolescence, demand, competitiveness, and other economic considerations.

6.) The amount of maintenance necessary to get the asset’s estimated future cash flows.

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Most popular questions from this chapter

Zoop Corporation purchased for \(300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of \)180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment.

Simon Company determines that its goodwill is impaired. It finds that its implied goodwill is \(360,000 and its recorded goodwill is \)400,000. The fair value of its identifiable assets is $1,450,000. What is the amount of goodwill impaired?

Question: Where can authoritative IFRS guidance related to intangible assets be found?

(Accounting for Pre-Opening Costs) After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb.

The shopping center would have opened on schedule on January 1, 2017, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2017. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance.

In July 2016, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property.

A summary of some of the costs incurred in 2016 and the first nine months of 2017 follows.

2016

January 1, 2017, through September 30, 2017

Interest on mortgage bonds

\(720,000

\)540,000

Cost of obtaining tenants

300,000

360,000

Promotional advertising

540,000

557,000

The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2017, the 2016 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2017.

All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on the condition that the monthly rental charges for the first 9 months of 2017 be canceled.

Instructions

Explain how each of the costs for 2016 and the first 9 months of 2017 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.

In what situation will the unrealized holding gain or loss on inventory be reported in income?
See all solutions

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