Perspective and Issues

Definitions of Terms

Concepts, Rules, and Examples

Intangible Assets

Defensive intangible assets

Leasehold improvements

Software developed for internal use

Website development costs

Initial recognition and measurement of intangible assets



Intangible assets have no physical substance. Their value is based on the rights or privileges to which they entitle the reporting entity. Most of the accounting issues associated with long-lived assets involve proper measurement and timing of the transactions. Adequate consideration must be given to the economic substance of the transaction.

All entities are required to review certain identifiable, intangible assets for impairment at least annually and whenever circumstances and situations change such that there is an indication that the carrying amount may not be recoverable. If, upon review, the undiscounted future cash flows (without interest charges) are less than the carrying amount, the carrying amount is reduced to fair value and an impairment loss is recognized. This fair value is considered the new cost basis and is not subject to subsequent adjustment except for depreciation and further impairment. Thus, there is no restoration of previously recognized impairment losses. With some exceptions, these rules also apply to rate-regulated assets. Thus, costs excluded by a regulator from the reporting entity’s rate base would be recognized as impairment ...

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