ANALISIS LAPORAN KEUANGAN

Pekan ke-5

POLITEKNIK KEUANGAN NEGARA-STAN TA 2017/2018

3 Oktober 2017
Puji Wibowo , Ak., MIDEC, CA
pujibinsoegito@gmail.com
 Off-Balance-Sheet Financing

Off-Balance-Sheet Financing is the non-recording of financing obligations

 
Motivation
To keep debt off the balance sheet—part of ever-changing landscape, where as one
accounting requirement is brought in to better reflect obligations from a specific off-
balance-sheet financing transaction, new and innovative means are devised to take
its place
 
Transactions sometimes used as off-balance-sheet financing:

GAAP
 Off-balance sheet cases

Operating lease

Misuse SPEs
QSPE

Securitization

What are lessons learned ?

 Shareholders’ Equity
Basics of Equity Financing
Equity — refers to owner (shareholder)
financing; its usual characteristics include:
• Reflects claims of owners (shareholders) on
net assets
• Equity holders usually subordinate to
creditors
• Variation across equity holders on seniority
• Exposed to maximum risk and return

Equity Analysis — involves analyzing equity characteristics, including:

• Classifying and distinguishing different equity sources
• Examining rights for equity classes and priorities in liquidation
• Evaluating legal restrictions for equity distribution
• Reviewing restrictions on retained earnings distribution
• Assessing terms and provisions of potential equity issuances

Equity Classes — two basic components:

• Capital Stock
• Retained Earnings
 Shareholders’ Equity

Reporting Capital Stock

Sources of increases in capital stock outstanding:

• Issuances of stock
• Conversion of debentures and preferred stock
• Issuances pursuant to stock dividends and splits
• Issuances of stock in acquisitions and mergers
• Issuances pursuant to stock options and warrants exercised

Sources of decreases in capital stock outstanding:

• Purchases and retirements of stock
• Stock buybacks
• Reverse stock splits
 Shareholders’ Equity

Components of Capital Stock

Contributed (or Paid-In) Capital — total financing received from
shareholders for capital shares; usually divided into two parts:
 
• Common (or Preferred) Stock — financing equal to par or
stated value;if stock is no-par, then equal to total financing
 
• Contributed (or Paid-In) Capital in Excess of Par or Stated
Value — financing in excess of any par or stated value

Treasury Stock (or buybacks) - shares of a company’s stock

reacquired after having been previously issued and fully paid for.
• Reduces both assets and shareholders’ equity
• contra-equity account (negative equity).
• typically recorded at cost
 Shareholders’ Equity

Classification of Capital Stock

Preferred Stock — stock with features not possessed by
common stock; typical preferred stock features include:
• Dividend distribution preferences
• Liquidation priorities
• Convertibility (redemption) into common stock
• Call provisions
• Non-voting rights
 
Common Stock — stock with ownership interest and bearing
ultimate risks and rewards (residual interests) of

company performance
 Shareholders’ Equity
Basics of Retained Earnings
Retained Earnings — earned capital of a company; reflects
accumulation of undistributed earnings or losses since inception;
retained earnings is the main source of dividend distributions
 
Cash and Stock Dividends
• Cash dividend — distribution of cash (or assets) to shareholders
• Stock dividend — distribution of capital stock to shareholders
 
Prior Period Adjustments — mainly error corrections of prior periods’
statements
 
Appropriations of Retained Earnings — reclassifications of retained
earnings for specific purposes
 
Restrictions (or Covenants) on Retained Earnings — constraints
or requirements on retention of retained earnings
 Shareholders’ Equity

Spin-Offs and Split-Offs

• Spin-off, the distribution of subsidiary stock to

shareholders as a dividend; assets (investment in
subsidiary) are reduced as is retained earnings.

• Split-off, the exchange of subsidiary stock owned by

the company for shares in the company owned by the
shareholders; assets (investment in subsidiary) are
reduced and the stock received from the shareholders is
treated as treasury stock.
 Book Value per Share
• Book value per share is the per share amount resulting from a
company’s liquidation at amounts reported on its balance sheet.

• Book value is referring to net asset value—that is, total assets

reduced by claims against them. The book value of common
stock is equal to the total assets less liabilities and claims of
securities senior to common stock (such as preferred stock) at
amounts reported on the balance sheet (but can also include
unbooked claims of senior securities).

• A simple means of computing book value is to add up the com-

mon stock equity accounts and reduce this total by any senior
claims not reflected in the balance sheet (including preferred
stock dividend arrearages, liquidation premiums, or other asset
preferences to which preferred shares are entitled).
 Book Value per Share
• Book Value in financial statements analysis:

1. Book value, with potential adjustments, is frequently

used in assessing merger terms.

2. Analysis of companies composed of mainly liquid

assets (finance, investment, insurance, and banking
institutions) relies extensively on book values.

3. Analysis of high-grade bonds and preferred stock

attaches considerable importance to asset coverage.
 Book Value per Share
• These applications must recognize the accounting considerations
entering into the computation of book value per share such as the
following:
1. Carrying values of assets, particularly long-lived assets like
property, plant, and equipment, are usually reported at cost
and can markedly differ from market values.
2. Internally generated intangible assets often are not reflected
in book value, nor are contingent assets with a reasonable
probability of occurrence.
3. Other adjustments often are necessary. For example, if
preferred stock has characteristics of debt, it is appropriate to
treat it as debt at the prevailing interest rate. In short, book
value is a valuable analytical tool, but we must apply it with
discrimination and understanding.
 LIABILITIES AT “EDGE” OF EQUITY

Redeemable Preferred Stock

• Analysts must be alert for equity securities (typically preferred stock) that
possess mandatory redemption provisions making them more akin to debt than
equity. These securities require a company to pay funds at specific dates. A true
equity security does not impose such requirements. Examples of these
securities, under the guise of preferred stock, exist for many companies.

• The SEC asserts that redeemable preferred stocks are different from
conventional equity capital and should not be included in shareholders’ equity
nor combined with nonredeemable equity securities.

• The SEC also requires disclosure of redemption terms and five-year maturity
data. Accounting standards require disclosure of redemption requirements of
redeemable stock for each of the five years subsequent to the balance sheet
date. Companies whose shares are not publicly traded are not subject to SEC
requirements and can continue to report redeemable preferred stock as equity.
Still, our analysis should treat them for what they are—an obligation to pay cash
at a future date.
 Lecture IV:
Analysis of Investing Activities

 Current Assets
 Long-lived Assets
 Intangible Assets
 Current Asset Introduction

Classification

Current
Current(Short-term)
(Short-term)Assets
Assets Noncurrent
Noncurrent(Long-term)
(Long-term)
Assets
Assets

Resources
Resourcesor or claims
claimsto to Resources
Resourcesor or claims
claimstoto
resources
resourcesthat
that are
are resources
resourcesthat
that are
are
expected
expectedto tobebesold,
sold, expected
expectedtotoyield
yield
collected,
collected, or
orused
used within
within benefits
benefitsthat
that extend
extend
one
oneyear
yearor
orthe
theoperating
operating beyond
beyond one
oneyear
yearororthe
the
cycle,
cycle, whichever
whicheveris is operating
operatingcycle,
cycle,
longer.
longer. whichever
whicheverisislonger.
longer.
 Current Asset Introduction

Cash, Cash Equivalents and Liquidity

Cash
Cash
Currency,
Currency, coins
coins and
and amounts
amounts on
on deposit
deposit
in
in bank
bank accounts,
accounts, checking
checking accounts,
accounts, and
and
some
some savings
savings accounts.
accounts.
 Current Asset Introduction

Cash, Cash Equivalents and Liquidity

Cash
Cash Equivalents
Equivalents
Short-term,
Short-term, highly
highly liquid
liquid investments
investments that
that are:
are:

 Readily
Readily convertible
convertible toto aa known
known cash
cash
amount.
amount.

 Close
Close to
to maturity
maturity date
date and
and not
not
sensitive
sensitive to
to interest
interest rate
rate changes.
changes.
 Current Asset Introduction

Analysis of Cash and Cash Equivalents

•• Companies
Companiesrisk
riskaareduction
reductionin
inliquidity
liquidityshould
shouldthe
the
market
marketvalue
valueof ofshort-term
short-terminvestments
investmentsdecline.
decline.
•• Cash
Cash and
and cash
cashequivalents
equivalents are
are sometimes
sometimes required
required
to
tobe
bemaintained
maintainedas ascompensating
compensatingbalances
balancestoto
support
support existing
existingborrowing
borrowingarrangements
arrangementsororasas
collateral
collateral for
for indebtedness.
indebtedness.
 Current Asset Introduction

Receivables
Receivables
Receivables areareamounts
amountsdue duefrom
fromothers
othersthat
thatarise
arise
from
from the
thesale
saleof
of goods
goodsoror services,
services, or
orthe
theloaning
loaningofof
money
money
Accounts
Accounts receivable
receivable refer
refer to
tooral
oral promises
promises ofof
indebtedness
indebtednessdue
duefrom
fromcustomers
customers
Notes
Notes receivable
receivable refer
referto
toformal
formal written
writtenpromises
promisesof of
indebtedness
indebtednessdue
duefrom
fromothers
others
 Current Asset Introduction

Valuation of Receivables
Receivables
Receivablesarearereported
reported at
at their
their net
net realizable
realizablevalue
value
—
—total
total amount
amountofofreceivables
receivablesless
lessananallowance
allowancefor
for
uncollectible
uncollectible accounts
accounts

Management
Managementestimates
estimatesthe
the allowance
allowance for
for
uncollectibles
uncollectibles based
basedononexperience,
experience, customer
customer
fortunes,
fortunes,economy
economyandandindustry
industryexpectations,
expectations, and
and
collection
collectionpolicies
policies
 Current Asset Introduction
Analyzing Receivables
Assessment
Assessmentof ofearnings
earningsquality
qualityisisoften
oftenaffected
affectedby byan ananalysis
analysisofofreceivables
receivablesand
andtheir
their
collectibility
collectibility
Analysis
Analysismust
mustbe bealert
alertto tochanges
changesin inthe
theallowance—computed
allowance—computedrelative relativeto
tosales,
sales,
receivables, or industry and market conditions.
receivables, or industry and market conditions.
Two
Twospecial
specialanalysis
analysisquestions:
questions:
(1)
(1)Collection
CollectionRisk Risk
Review
Reviewallowance
allowancefor foruncollectibles
uncollectiblesin inlight
lightofofindustry
industryconditions
conditions
Apply
Applyspecial
specialtools
toolsfor foranalyzing
analyzingcollectibility:
collectibility:
••Determining
Determiningcompetitors’
competitors’receivables
receivablesas asaapercent
percentofofsales—vis-à-vis
sales—vis-à-visthethe
company under analysis
company under analysis
••Examining
Examiningcustomer
customerconcentration—risk
concentration—riskincreases
increaseswhen
whenreceivables
receivablesare
are
concentrated in one or a few
concentrated in one or a few customerscustomers
••Investigating
Investigatingthe theageagepattern
patternof ofreceivables—overdue
receivables—overdueand andfor
forhow
howlong
long
••Determining
Determiningportion
portionof ofreceivables
receivablesthat
thatisisaarenewal
renewalofofprior
priorreceivables
receivables
••Analyzing
Analyzingadequacy
adequacyof ofallowances
allowancesfor fordiscounts,
discounts,returns,
returns,and
andother
othercredits
credits
(2) Authenticity of Receivables
(2) Authenticity of Receivables
Review
Reviewcredit
creditpolicy
policyfor forchanges
changes
Review
Review return policies forchanges
return policies for changes
Review
Review any contingencies onreceivables
any contingencies on receivables
 Which company is less risky in receivables?

Piutang Usaha per 31 Des 2015

sebesar Rp390,9 milyar
4,86% dari total aset

Piutang Usaha per 31 Des 2015

sebesar Rp23.389,61 milyar
84,30% dari total aset
 Current Asset Introduction

Securitization of Receivables
Securitization
Securitization(or
(orfactoring)
factoring)is
iswhen
whenaacompany
companysells
sellsall
allor
oraa
portion
portionof
ofits
itsreceivables
receivablestotoaathird
thirdparty
party
Receivables
Receivablescancanbebesold
soldwith
withor
orwithout
withoutrecourse
recoursetotoaabuyer
buyer
(recourse refers to guarantee of collectibility)
(recourse refers to guarantee of collectibility)
Sale
Saleof
ofreceivables
receivableswith
withrecourse
recoursedoes
doesnot
noteffectively
effectivelytransfer
transferrisk
risk
of
ofownership
ownership

• For securitizations with any type of recourse, the

seller must record both an asset and a compensating
liability for the amount factored
• For securitizations without any recourse, the seller
removes the receivables from the balance sheet
 Current Asset Introduction

Prepaid Expenses
Prepaid
Prepaidexpenses
expensesareareadvance
advancepayments
paymentsfor forservices
servicesor
orgoods
goodsnotnot
yet
yetreceived
receivedthat
thatextend
extendbeyond
beyondthe
thecurrent
currentaccounting
accountingperiod—
period—
examples
examplesareareadvance
advancepayments
paymentsfor
forrent,
rent,insurance,
insurance,utilities,
utilities,and
and
property
propertytaxes
taxes

Analysis of Prepaids
Two
Twoanalysis
analysisissues:
issues:
(1)
(1) For
Forreasons
reasonsof
ofexpediency,
expediency,noncurrent
noncurrentprepaids
prepaidssometimes
sometimes
are
areincluded
includedamong
amongprepaid
prepaidexpenses
expensesclassified
classifiedas
ascurrent--
current--
when
whentheir
theirmagnitude
magnitudeis
islarge,
large,they
theywarrant
warrantscrutiny
scrutiny
(2)
(2)Any
Anysubstantial
substantialchanges
changesin
inprepaid
prepaidexpenses
expenseswarrant
warrant
scrutiny
scrutiny
 Inventories

Definitions

Inventories are goods held for sale, or goods

acquired (or in process of being readied) for sale,
as part of a company’s normal operations
Expensing treats inventory costs like period costs—
costs are reported in the period when incurred
Capitalizing treats inventory costs like product costs
—costs are capitalized as an asset and
subsequently charged against future period(s)
revenues benefiting
from their sale
 Inventories

Inventory Costing Method

Use of Inventory Methods in Practice

FIFO
LIFO 46%
30%

Other
Weighted 4%
Average
20%
 Inventories

First-In, First-Out (FIFO)

Oldest
Oldest Costs
Costs of
of Goods
Goods
Costs
Costs Sold
Sold

Recent
Recent Ending
Ending
Costs
Costs Inventory
Inventory
 Inventories

Last-In, First-Out (LIFO)

Recent
Recent Costs
Costs of
of
Costs
Costs Goods
Goods Sold
Sold

Oldest
Oldest Ending
Ending
Costs
Costs Inventory
Inventory
 Inventories
Average Cost
When
When aa unit
unit is
is sold,
sold, the
the
average
average cost
cost ofof each
each unit
unit
in
in inventory
inventory is
is assigned
assigned to to
cost
cost of
of goods
goods sold.
sold.

Cost of Units
Goods ÷ available on
Available for the date of
Sale sale
 Inventories

Illustration of Costing Methods

Inventory
InventoryononJanuary
January1,1,Year
Year22 40
40@@$500
$500 $$20,000
20,000
Inventories
Inventoriespurchased
purchased
during
duringthe
theyear
year 60
60@@$600
$600 36,000
36,000
Cost
CostofofGoods
Goodsavailable
available
for
forsale
sale 100
100units
units $$56,000
56,000

Note:
Note:30
30units
unitsare
aresold
soldin
inYear
Year22for
for$800
$800each
eachfor
fortotal
total
Revenue
Revenueofof$24,000
$24,000
 Inventories
Illustration of Costing Methods

Beginning
Beginning Net
Net Cost
Costof
of Ending
Ending
Inventory
Inventory ++ Purchases
Purchases == Goods
GoodsSold
Sold ++ Inventory
Inventory
FIFO
FIFO $20,000
$20,000 ++ $36,000
$36,000 == $15,000
$15,000 ++ $41,000
$41,000
LIFO
LIFO $20,000
$20,000 ++ $36,000
$36,000 == $18,000
$18,000 ++ $38,000
$38,000
Average
Average $20,000
$20,000 ++ $36,000
$36,000 == $16,800
$16,800 ++ $39,200
$39,200
  
Assume
Assumesales
salesof
of$35,000
$35,000for
forthe
theperiod—then
period—thengross
grossprofit
profitunder
undereach
each
method
methodis:
is:
Sales
Sales –– Cost
Costof
ofGoods
GoodsSold
Sold == Gross
GrossProfit
Profit
FIFO
FIFO $24,000
$24,000 ---- 15,000
15,000 == $9,000
$9,000
LIFO
LIFO $24,000
$24,000 ---- 18,000
18,000 == $6,000
$6,000
Average
Average $24,000
$24,000 ---- 16,800
16,800 == $7,200
$7,200
 Economic Profit vs. Holding Gain

• In periods of rising prices, FIFO produces higher gross

profits than LIFO because lower cost inventories are
matched against sales revenues at current market
prices. This is sometimes referred to as FIFO’s phantom
profits.

• The FIFO gross profit is actually a sum of two

components: an economic profit and a holding gain:
– Economic profit = 30 units x ($800 - $600) = $6,000
– Holding gain = 30 units x ($600 - $500) = $3,000
 Inventories

LIFO Liquidations
  
(1)
(1) Companies
Companiesmaintain
maintainLIFO
LIFO inventories
inventoriesin
inseparate
separate
cost
cost pools.
pools.

(2)
(2) When
Wheninventory
inventoryquantities
quantitiesare
arereduced,
reduced,each
eachcost
cost
layer
layeris
ismatched
matchedagainst
against current
current selling
sellingprices.
prices.

(3)
(3) In
Inperiods
periodsof
of rising
risingprices,
prices, dipping
dippinginto
intolower
lowercost
cost
layers
layerscan
caninflate
inflateprofits.
profits.
 Inventories
Analyzing Inventories—Restatement of LIFO to
FIFO
  
Three
Threestep
step process:
process:

(1)
(1) Reported
Reported LIFO
LIFOInventory
Inventory++ LIFO
LIFOreserve
reserve
(2)
(2) Deferred
Deferredtax
taxpayable
payable++ [LIFO
[LIFO reserve
reservexxTax
Taxrate]
rate]
(3)
(3) Retained
Retainedearnings
earnings++[LIFO
[LIFOreserve
reservexx(1-Tax
(1-Taxrate)]
rate)]
  
LIFO
LIFO reserve
reserve is
isthe
theamount
amount bybywhich
whichcurrent
current cost
cost
exceeds
exceedsreported
reportedcost
cost of
of LIFO
LIFO
inventories
inventories
 Long-Lived Asset Introduction

Definitions
Long-lived
Long-livedassets—resources
assets—resourcesthat
thatare
areused
usedto
togenerate
generaterevenues
revenues(or
(or
reduce
reducecosts)
costs)in
inthe
thelong
longrun
run
Tangible fixed assets such as
property, plant, and equipment

Intangible assets such as

patents, trademarks,
copyrights, and goodwill

Deferred charges such as

research and development
(R&D) expenditures, and natural
resources
 Long-Lived Asset Introduction

Capitalization
Capitalization—process
Capitalization—processof ofdeferring
deferringaacost
costthat
thatis
isincurred
incurredin
in
the
thecurrent
currentperiod
periodand
andwhose
whosebenefits
benefitsare
areexpected
expectedto toextend
extendtoto
one
oneorormore
morefuture
futureperiods
periods
  
For
Foraacost
costto
tobe
becapitalized,
capitalized,ititmust
mustmeet
meeteach
eachofofthe
thefollowing
following
criteria:
criteria:

••ItItmust
mustarise
arisefrom
fromaa
past
pasttransaction
transactionororevent
event

••ItItmust
mustyield
yieldidentifiable
identifiableand
and
reasonably
reasonablyprobable
probablefuture
futurebenefits
benefits

••ItItmust
mustallow
allowowner
owner(restrictive)
(restrictive)
control
controlover
overfuture
futurebenefits
benefits
 Long-Lived Asset Introduction

Allocation
Allocation—process
Allocation—processof ofperiodically
periodicallyexpensing
expensingaadeferred
deferred
cost
cost(asset)
(asset)to
toone
oneor
ormore
morefuture
futureexpected
expectedbenefit
benefitperiods;
periods;
determined
determinedbybybenefit
benefitperiod,
period,salvage
salvagevalue,
value,and
andallocation
allocation
method
method

Terminology
Terminology
•• Depreciation
Depreciationfor
fortangible
tangiblefixed
fixed
assets
assets
•• Amortization
Amortizationfor
forintangible
intangibleassets
assets
•• Depletion
Depletionfor
fornatural
naturalresources
resources
 Long-Lived Asset Introduction

Impairment

Impairment—process
Impairment—processof ofwriting
writingdown
downasset
assetvalue
valuewhen
whenitsits
expected
expected(undiscounted)
(undiscounted)cash cashflows
flowsare
areless
lessthan
thanits
itscarrying
carrying
(book)
(book)valuevalue
  
Two
Twodistortions
distortionsarise
arisefrom
fromimpairment:
impairment:
        
        •• Conservative
Conservativebiases
biasesdistort
distort
long-lived
long-livedasset
assetvaluation
valuation
because
becauseassets
assetsare
arewritten
written
down
downbutbutnot
notwritten
writtenupup
    
     ••Large
Largetransitory
transitoryeffects
effectsfrom
from
recognizing
recognizingasset
assetimpairments
impairments
distort
distortnet
netincome.
income.
 Plant Assets & Natural Resources

Plant Assets

Tangible

Actively Used in Operations

Expected to Benefit Future Periods

Property, Plant and Equipment

 Plant Assets & Natural Resources

Plant Assets Costing Rule

Purchase All
price expenditures
needed to
Acquisition prepare the
cost asset for its
intended use

Acquisition cost excludes

financing charges and
cash discounts.
 Plant Assets & Natural Resources

Valuation Analysis

Valuation emphasizes objectivity of historical cost, the

conservatism principle, and accounting for the money
invested
 
Limitations of historical costs:
• Balance sheets do not purport to reflect market values
• Not especially relevant in assessing replacement values
• Not comparable across companies
• Not particularly useful in measuring opportunity costs
• Collection of expenditures reflecting different
purchasing power
 Plant Assets & Natural Resources

Depreciation
Depreciation is the process of allocating the cost of a
plant asset to expense in the accounting periods
benefiting from its use.

Balance Sheet Income Statement

Cost
Acquisition Expense
Cost Allocation

(Unused) (Used)
 Plant Assets & Natural Resources

Factors in Computing Depreciation

The calculation of depreciation requires three

amounts for each asset:
 Cost.
 Salvage Value.
 Useful Life.
 Depreciation Method
 Plant Assets & Natural Resources

Comparing Depreciation Methods

Straight-Line Method

Depreciation Cost - Salvage Value

=
Expense per Year Useful life in periods

SL
 Plant Assets & Natural Resources

Double-Declining-Balance Method
Step 1:
Straight-line 100 %
depreciation rate = Useful life
Step 2:
Double-declining- Straight-line
balance rate = 2 × depreciation rate

Step 3:
Depreciation Double-declining- Beginning period
expense = balance rate × book value

Ignores salvage value

 Plant Assets & Natural Resources

Activity (Units-of-Production) Method

Step 1:
Depreciation = Cost - Salvage Value
Per Unit Total Units of Production

Step 2:
Depreciation Depreciation Units Produced
= ×
Expense Per Unit in Period
 Plant Assets & Natural Resources

Natural Resources
Natural resources (wasting assets)—rights to extract or consume natural resources

Total cost, Extracted from

including the natural
exploration and environment
development, and reported
is charged to at cost less
depletion expense accumulated
over periods depletion.
benefited.

Examples: oil, coal, gold

 Plant Assets & Natural Resources

Depletion of Natural Resources

Depletion is calculated using the

units-of-production method.

Unit depletion rate is calculated as follows:

Cost – Salvage Value

Total Units of Capacity
Plant Assets & Natural Resources

Depletion of Natural Resources

Total depletion cost for a period is:

Unit Depletion Number of Units
Rate × Extracted in Period

Cost of
Total goods sold
depletion
cost Unsold
Inventory
 Plant Assets & Natural Resources
Analyzing Depreciation and Depletion
• Assess reasonableness of depreciable base, useful life, and allocation method
• Review any revisions of useful lives
• Evaluate adequacy of depreciation—ratio of depreciation to total assets or to
other size-related factors
• Analyze plant asset age—measures include

Average total life span = Gross plant and equipment assets /

Current year depreciation expense.
Average age = Accumulated depreciation / Current
year depreciation expense.
Average remaining life = Net plant and equipment assets /
Current year depreciation expense.

Average total life span = Average age + Average remaining life

(these measures also reflect on profit margins and financing requirements)
 Intangible Assets

Noncurrent
Noncurrentassets
assets Often
Oftenprovide
provide
without
withoutphysical
physical exclusive
exclusiverights
rights
substance.
substance. or
orprivileges.
privileges.

Intangible
Assets
Usually
Usuallyacquired
acquired
Useful
Usefullife
lifeis
is for
foroperational
operational
often
oftendifficult
difficult use.
use.
to
todetermine.
determine.
 Intangible Assets
Accounting for Intangible Assets

Record at  Patents
cost, including  Copyrights
purchase price,  Leaseholds
legal fees, and  Leasehold
filing fees.
Improvements
 Goodwill
 Trademarks and
Trade Names
 Intangible Assets
Analyzing Intangibles and Goodwill
 Search for unrecorded intangibles and goodwill—
often misvalued and
most likely exist off-balance-sheet
 Examine for superearnings as
evidence of goodwill
 Review amortization periods—any likely bias is in the direction
of less amortization and can call for adjustments
 Recognize goodwill has a limited useful life--whatever the
advantages of location, market dominance, competitive stance,
sales skill, or product acceptance, they are affected by changes in
business