Question

Explore the FASB Codification section related to intangible assets (§350). Explain how specific intangibles might be treated within a particular industry and justify why this methodology is appropriate.

Answer 1

Solution:

• In 2014, the Board amended the FASB Accounting Standards Codification  to allow private companies an alternative accounting treatment for subsequently measuring goodwill. The Board determined that those amendments were needed because of concern expressed by private companies and their stakeholders about the cost and complexity of the goodwill impairment test. The FASB added a project to its agenda to determine whether similar amendments should be considered for other entities, including public business entities and not-for-profit entities. The Board subsequently separated the project into two phases. The objective of Phase 1 of the project, which resulted in this Update, is to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The Board will evaluate the effectiveness of the guidance in this Update and monitor the International Accounting Standards Board’s (IASB’s) projects on goodwill and impairment before considering whether additional changes to the subsequent accounting for goodwill, including consideration of permitting or requiring amortization of goodwill and/or additional changes to the impairment testing methodology, are warranted. As a result, the Board moved Phase 2, the project on subsequent accounting for goodwill for public business entities and notfor-profit entities, to the research agenda.
• The amendments in this Update are required for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. Private companies that have adopted the private company alternative for goodwill but not the private company alternative to subsume certain intangible assets into goodwill are permitted, but not required, to adopt the amendments in this Update without having to justify preferability of the accounting change if it is adopted on or before the effective date. Private companies that have adopted the private company alternative to subsume certain intangible assets into goodwill, and, thus, also adopted the goodwill alternative, are not permitted to adopt this guidance upon issuance without following the guidance in Topic 250, Accounting Changes and Error Corrections, including justifying why it is preferable to change their accounting policies. 350-10-05-3A Guidance for the financial accounting and reporting at acquisition of goodwill and other intangible assets acquired in a business combination or acquired in an acquisition by a not-for-profit entity is provided in the following Subtopics: a. Subtopic 805-20 provides acquisition guidance for intangible assets acquired in a business combination or in an acquisition by a not-for-profit entity. b. Subtopic 805-30 provides guidance on recognition and initial measurement of goodwill acquired in a business combination. c. Subtopic 958-805 provides guidance on recognition and initial measurement of goodwill acquired in an acquisition by a not-for-profit entity.