This research reviews financial statement presentation and disclosure requirements associated with intangible assets. In matters of law and taxation, an intangible asset is any nonmaterial property right. In the narrower context of financial accounting, however, intangible assets have traditionally included only goodwill, patents, trademarks, secret processes, and similar items, while securities, notes, and claims, although intangible in a legal context, are considered to be tangible for purposes of financial accounting.1
APB Opinion No. 17 requires that costs assigned to intangible assets not reflect any costs of developing, maintaining, or restoring such intangibles subsequent to their acquisition by a firm. Further, costs assigned to identifiable intangibles may not be merged with or replaced by amounts relating to other identifiable intangibles or goodwill. With respect to assets acquired from other firms, APB Opinion No. 17 requires that intangible assets that can be separately identified at the time of acquisition be assigned a portion of the total cost of the acquired enterprise if the fair values of those assets can be reliably determined.
APB Opinion No. 17 requires that the cost of any intangible asset acquired subsequent to 30 October 1970 be amortized over the shorter period of (1) the estimated useful life of the intangible asset, or (2) 40 years. Firms are required to continually evaluate the period of amortization to determine
1J. C. Corry, "Accounting Aspects of Takeovers," Management Accounting, 72 (September 1990): 48.whether (1) later circumstances warrant a revision in the estimate of the useful life of an intangible asset, and (2) the unamortized cost of an intangible asset should be reduced to a significant extent by a charge to income.
Goodwill is the most ubiquitous of intangible assets. Traditionally, goodwill has been created when a firm is acquired at a price which includes a premium over t...