Intangible assets are assets, excluding financial assets, that lack physical substance. In determining whether an identifiable intangible asset should be recognized separately from goodwill, the acquirer should evaluate whether the asset meets either of the following criteria: Show
Intangible assets that meet either of these criteria are considered identifiable and are separately recognized at fair value on the acquisition date. Certain intangible assets, however, do not typically meet either of the identifiable criteria and, therefore, are not recognized as separate intangible assets. Examples include:
In a business combination an assembled workforce is not recognized as a separate intangible asset in accordance with . See for further information on an assembled workforce. The flowchart in Figure BCG 4-1 outlines a process that may be used to determine whether an intangible asset meets the identifiable criteria for separate recognition. Figure BCG 4-1 ______________ 2 Consider whether the intangible asset is capable of being separated; whether there are sales of similar types of assets in the market; or whether it is separable in conjunction with a related contract, asset, or liability in accordance with through . 3 Consider whether the terms of confidentiality or other agreements prohibit an entity from selling, leasing, or otherwise exchanging the underlying information in accordance with . 4.2.1 Contractual-legal criterion (intangible assets)Intangible assets that arise from contractual or other legal rights are recognized separately from goodwill, even if the asset is not transferable or separable from the acquiree or from other rights and obligations. Intangible assets may arise from licenses, contracts, lease agreements, or other types of arrangements that the acquired business has entered into with other parties. does not define the term “contractual or other legal rights,” but the list of contractual-legal intangible assets included in makes it clear that the definition is intended to be broad. For instance, a purchase order, even if cancellable, meets the contractual-legal criterion, although it may not be considered a contract from a legal perspective in certain jurisdictions. In accordance with , customer relationships meet the contractual-legal criterion if an entity has a practice of establishing contracts with its customers, regardless of whether there is an outstanding contract or purchase order at the acquisition date. In addition, the use of the contractual-legal criterion to recognize intangible assets under may be broader than that used in other accounting literature in US GAAP. For example, a signed contract is not necessary at the acquisition date to recognize a customer-related intangible asset. However, in applying other accounting literature in US GAAP, an entity may be precluded from recognizing revenue without a signed contract because it may not be able to support existence of a contract. Contracts or agreements may also contain clauses that explicitly prohibit the transfer or sale of a specified item separately from the acquiree (e.g., transfer restrictions related to a government contract). These types of prohibitions should not affect an acquirer from recognizing the contractual rights as an intangible asset. However, such restrictions may affect the fair value of the intangible asset. For example, a restriction to sell an asset may impact its fair value if such restrictions would transfer to market-participants. Contracts may also be cancellable at the option of either party. The ability to cancel a contract does not affect its recognition as a separate intangible asset acquired in a business combination, although it may affect its fair value. Sometimes a contract of the acquired entity states that the right to an asset (such as a license or permit) does not survive a change in control, but reverts back to the issuer. The new owner of the business must execute a new arrangement to acquire the asset from the issuer. In such circumstances, the contractual asset is not an asset of the acquiree to be recognized in the acquisition accounting. 4.2.2 Separability criterion (intangible assets)The determination of whether an intangible asset meets the separability criterion can be challenging. An acquirer should determine whether the asset is capable of being separated from the acquired business, regardless of the intent of the acquirer with respect to that particular asset. For example, a brand is generally capable of being separated from the acquired business and, therefore, would meet the separability criterion, even if the acquirer does not intend to sell it. In determining whether an intangible asset is capable of separation, a company could observe sales or exchanges in the market for the same or similar types of assets. Sales of the same or similar types of assets indicate that the asset is able to be sold separately, regardless of the acquirer’s involvement in such sales or the frequency of such transactions. Intangible assets may be closely related to a contract, identifiable asset, or liability, and cannot be separated individually from the contract, asset, or liability. An intangible asset will still meet the separability criterion as long as it is transferable in combination with a related contract, identifiable asset, or liability. However, to meet the separability criterion, there cannot be restrictions on the transfer, sale, or exchange of the asset. For example, customer information is often protected by a confidentiality agreement (e.g., patient relationships at a healthcare facility). A customer list that cannot be leased or sold due to a confidentiality agreement would not be considered capable of being separated from the rest of the acquired business and would not meet the separability criterion found in . 4.2.3 Examples of applying the identifiable criteria (intangibles)Example BCG 4-1, Example BCG 4-2, and Example BCG 4-3 demonstrate the application of the identifiable criteria when determining whether an intangible asset should be recognized in a business combination. EXAMPLE BCG 4-1 Company X acquires Company Y in a business combination on December 31, 20X1. Company Y conducts business with its customers solely through purchase orders. At the acquisition date, Company Y has customer purchase orders in place from 60% of its customers, all of whom are recurring customers. The other 40% of Company Y’s customers are also recurring customers. However, as of December 31, 20X1, Company Y does not have any open purchase orders with those customers. Which portion of Company Y's customer relationships would be recognized and measured at the acquisition date? Analysis Company X needs to determine whether any of the acquired customer relationships are identifiable intangible assets that should be recognized. The purchase orders (whether cancellable or not) in place at the acquisition date from 60% of Company Y’s customers meet the contractual-legal criterion. Further, Company X needs to determine if a production backlog arises from the acquired purchase orders as this may meet the contractual-legal criterion for recognition. Consequently, the relationships with customers through these types of contracts also arise from contractual rights and, therefore, meet the contractual-legal criterion. The fair value of these customer relationships are recognized as an intangible asset apart from goodwill. Additionally, since Company Y has established relationships with the remaining 40% of its customers through its past practice of establishing contracts, those customer relationships would also meet the contractual-legal criterion and be recognized at fair value. Therefore, even though Company Y does not have contracts in place at the acquisition date with a portion of its customers, Company X would consider the value associated with all of its customers for purposes of recognizing and measuring Company Y’s customer relationships. EXAMPLE BCG 4-2 A financial institution that holds deposits on behalf of its customers is acquired. There are no restrictions on sales of deposit liabilities and the related depositor relationships. Should deposit liabilities and related depositor relationships be accounted for at the acquisition date? Analysis Yes. Deposit liabilities and the related depositor relationship intangible assets may be exchanged in observable exchange transactions. As a result, the depositor relationship intangible asset would be considered identifiable and meet the separability criterion since the depositor relationship intangible asset can be sold in conjunction with the deposit liability. EXAMPLE BCG 4-3 An acquiree, a food and beverage manufacturer, sells hot sauce using a secret recipe. The acquiree owns a registered trademark, a secret recipe formula, and unpatented process used to prepare its famous hot sauce. If the trademark is sold, the seller would also transfer all knowledge associated with the trademark, which would include the secret recipe formula and the unpatented process used to prepare its hot sauce. How should the trademark and complementary assets be accounted for at the acquisition date? Analysis The acquirer would recognize an intangible asset for the registered trademark based on the contractual-legal criterion. Separate intangible assets would also be recognized for the accompanying secret recipe formula and the unpatented process based on the separability criterion. The separability criterion is met because the secret recipe formula and unpatented process would be transferred with the trademark. As discussed in , the acquirer may group complementary intangible assets (registered trademark, related secret recipe formula, and unpatented process) as a single intangible asset if their useful lives are similar. PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
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Your recent searchesSuggested termsSuggested guidanceWarning 2{{isCompleteProfile ? "Setup your profile before Sign In" : "Profile"}}{{editProfile.email}} First name* {{validation.firstName.errorMessage}}Last name* {{validation.lastName.errorMessage}}Country or region* Required fieldFunctional role* Required fieldIndustry* Required fieldCompany* Company name must be at least two characters longNewsletter (optional) Yes, subscribe to the newsletter, and member firms of the PwC network can email me about products, services, insights, and events. Terms of Compliance* By providing your details and checking the box, you acknowledge you have read the Privacy Statement and Terms and Conditions (including the sections in each related to Registered Users).* Required field The following fields are not editable on this screen: First Name, Last Name, Company, and Country or Region. Please reach out to [email protected] if you need any assistance modifying these fields.Which of the following are part of the GASB's definition of intangible assets?Intangible Assets are defined by the GASB as capital assets that lack physical substance, have a useful life of more than one accounting period, and are non-financial in nature. Examples of government intangible assets include patents, copyrights, easements, water rights and computer software.
What are the 5 intangible assets?The main types of intangible assets are goodwill, brand equity, Intellectual properties (Trade Secrets, Patents, Trademark and Copyrights), licensing, Customer lists, and R&D. Usually, the values of intangible assets are not recorded in the balance sheet.
What are 3 intangible assets?Examples of intangible assets include intellectual property, brand recognition and reputation, relationships, and goodwill.
What is included in intangible assets?Examples of intangible assets include computer software, licences, trademarks, patents, films, copyrights and import quotas.
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