Recording Intangible Assets

1. Explain the preferred use of historical cost as the basis for recording property and equipment and intangible assets.

2. Realize that the use of historical cost means that a company’s intangible assets such as patents and trademarks can be worth much more than is shown on the balance sheet.

3. Recognize that large reported intangible asset balances can result from their acquisition either individually or through the purchase of an entire company that holds valuable intangible assets.

4. Show the method of recording intangible assets when the owner is acquired by a parent company.

 if the asset is not going to be sold, is the fair value of any relevance at the current time?

Cost remains the basis for reporting many assets in financial accounting, though the reporting of fair value has

gained considerable momentum. It is not that one way is right and one way is wrong. Instead, decision makers

need to understand that historical cost is the generally accepted accounting principle that is currently in use for

assets such as intangibles. For reporting purposes, it does have obvious flaws. Unfortunately, any alternative

number that can be put forth to replace historical cost also has its own set of problems. At the present time,

authoritative accounting literature holds that historical cost is the appropriate basis for reporting intangibles.