The main difference between tangible and intangible assets is that tangible assets have a physical substance to them. This means they can be touched and have some physical form.
A patent is a contract that provides a company with exclusive rights to produce and sell a unique product. It is granted by the federal government and provides exclusivity from competition for twenty years. A copyright provides the exclusive right to reproduce and sell artistic, literary, or musical compositions for a period of seventy years beyond the death of the original author.
A. capitalized. B. expense. C. capitalized. D. capitalized. E. expense. F. expense. G. capitalized.
In measuring and reporting long-term assets, the expense recognition (“matching”) principle is applied. Under the expense recognition or “matching” principle, the acquisition cost of the asset must be allocated to the periods in which it is used to earn revenue. In this way, the cost of the asset is matched, as an expense, with the revenues that are earned from period to period through the use of the asset.
Depreciation is the process of allocating the cost of using a long-term asset over its anticipated economic (useful) life, whereas depletion is the process of expensing the cost of natural resources over the life of the asset, typically using a unit-consumed method. Amortization is specifically for intangible assets and typically is calculated using straight-line with no salvage value.
Goodwill is internally generated, but it is not recorded as an asset unless (and only when) one company acquires another company at a price greater than the total value of the net assets being purchased. The purchaser will record goodwill for the difference between the fair value of net assets acquired and the purchase price. Goodwill is not amortized and will be tested annually for impairment.
Obsolescence refers to the reduction in value and/or use of an asset. It may refer to the actual physical deterioration of the asset, which is known as physical obsolescence, or to the loss of value from causes other than physical deterioration, which is functional obsolescence. Functional obsolescence is specific to the organization and the usefulness the asset has for the company going forward. This type of obsolescence could be the result of simply not needing the asset any longer.