COPYRIGHT Franchise Cost

- An exclusive right granted by the - LUMP SUN PAYMENT (INITIAL

government to the author, composer or FRANCHISE FEE) for the acquisition PLUS
artist enabling the grantee to publish, sell or DIRECTLY ATTRIBUTABLE COSTS (legal
otherwise benefit from the literary, musical fees and expenses)
or artistic work - IF the agreement requires periodic
- The cost assigned to copyright consists of payment, such payment is considered as
ALL EXPENSES incurred in the production OUTRIGHT EXPENSE and is also known
of the work. as PERIODIC FRANCHISE FEE.
- If PURCHASED, the cost includes the cash
paid plus directly attributable cost Amortization of Franchise

Amortization of Copyright - If granted for a DEFINITE PERIOD, the cost

shall be amortized over the useful life or
- THEORETICALLY, the cost of copyright definite period, whichever is SHORTER. It is
shall be AMORTIZED over the useful life tested for impairment at the end of reporting
- USEFUL LIFE is the period in which period.
benefits, sales and royalties are expected - If granted INDEFINITELY OR
- IN PRACTICE, it is often difficult to estimate PERPETUALLY, the cost shall NOT BE
the number of years so it is advisable to AMORTIZED but tested for IMPAIRMENT
WRITE OFF the cost of copyright against at least annually.
the REVENUE OF THE FIRST PRINTING.
Example: Periodic Franchise Fee
*Under the INTELLECTUAL PROPERTY CODE
OF PHIL, the term of protection of copyright is Franchisee pays the franchisor a periodic fee of 5%
on the gross sales of franchisee per year
during the life of the author and 50yrs after death.

FRANCHISE Franchisee realized gross sales of 5M for the

current year
FRANCHISOR grants certain rights to another Franchisee fee expense (5Mx5%) 250K
party called FRANCHISEE Cash 250K
Initial Franchise Fee
- Under the US GAAP, a franchise is a
contract-based intangible asset. The At the beginning of current year, an entity
franchise agreement may be: purchased a franchise from Jollibee Company for
5M (20years)
The initial franchise fee is payable in cash 500K
a) BETWEEN GOVERNMENT AND and the balance in five equal installments evidence
PRIVATE ENTITY by a 12% promissory note.
- The private entity is permitted to use public Book of FRANCHISEE
property in performing services
(use of streets and highways for bus line, 1.) INITIAL FRANCHISE FEE
use of public land for telephone and Franchise 5M
electrical lines) Cash 500K
Notes Payable 4.5M
2.) first Installment
b) BETWEEN PRIVATE ENTITIES
NP (4.5M/5) 900K
- The FRANCHISEE acquires the right to use Interest expense(4.5Mx12%) 540K
the TRADEMARK, PATENT AND Cash 1,440K
PROCESS of the FRANCHISOR 3.) Amortization of Franchise
(Right to operate a fried chicken drive-in Amortization of Franchise 250K
under the trade name “MAX”) Franchise (5M/20) 250k
LEASE RIGHT
 - A lessee is required to initially recognized - Represent cost incurred in forming or
a RIGHT OF USE ASSET for the lease term organizing a corporation
and a LEASE LIABILITY for the obligation to - Organization cost shall be EXPENSED
make lease payments immediately.

LEASEHOLD IMPROVEMENT WEB SITE DEVELOPMENT COST

- Alteration or modification on leased property - DOES NOT MEET the requirement to be

made by the lessee. recognized as an INTANGIBLE ASSET.
- NOT INCLUDED in the cost of right of use - SHALL BE EXPENSE AS INCURRED
asset but accounted separately
- Examples :building, walk, pavement, CHAPTER 38- RESEARCH AND DEVELOPMENT
landscaping, driveway COST
- Classified under PPE of the lessee Research is original and planned investigation
- Depreciated over the lease term or useful undertaken with the prospect of gaining scientific or
life of the improvement, WHICHEVER IS technical knowledge and understanding.
SHORTER
- The RESIDUAL VALUE shall be IGNORED Example: Laboratory research aimed at obtaining
in computing depreciation. or discovering new knowledge

BROADCASTING LICENSE WITH INDEFINITE Accounting for Research Cost

USEFUL LIFE
- Shall be EXPENSE when INCURRED
- Should not be amortized but tested for
impairment annually. DEVELOPMENT is the application of research
findings or other knowledge to a plan or design for
BROADCASTING LICENSE WITH FINITE the production of new or substantially improved
USEFUL LIFE material, device, product, process, system or
service, prior to the commencement of commercial
- Should be amortized over the remaining production.
useful life and immediately tested for
impairment Example: design, construction, and testing of
preproduction prototype and model.
AIRLINE RIGHT
Accounting for Development cost
- If it has an indefinite useful life, the airline
right should not be amortized but tested for - Development cost may or may not be
impairment annually. recognized as an intangible asset
depending on VERY STRICT CRITERIA
CUSTOMER LIST
CRITERIA FOR RECOGNITION (development cost
- Customer database containing the name, may qualify as intangible asset if it can
contract information, order history and other DEMONSTRATE ALL of the ff:)
vital and social statistics, such as birth,
death and even sickness. a) Technical feasibility of completing the
- INTERNALLY GENERATED CUSTOMER intangible asset
LIST SHALL NOT BE RECOGNIZED AS b) Intention to complete the intangible asset
AN INTANGIBLE ASSET. and use or sell it
- ACQUIRED customer list may be c) Ability to use or sell the intangible asset
RECOGNIZED as INTANGIBLE ASSET d) Generate probable future economic
and amortized over the useful life benefits

ORGANIZATION COST
 e) Availability of resources or funding to CLASSIFICATION OF COMPUTER
complete development SOFTWARE
f) Ability to measure reliably the expenditure
attributable to the intangible asset during a) As a rule, computer software is
the development classified as an INTANGIBLE ASSET
b) If purchased for resale it shall be
AMERICAN STANDARD treated as INVENTORY
c) If purchased as an INTEGRAL PART of
- Expenditures for research and development a computer controlled machine tool that
which have ALTERNATIVE FUTURE USE, CANNOT OPERATE without the
either in additional research project or for specific software shall be treated as
productive purposes CAN BE PPE.
CAPITALIZED
*if it is NOT AN INTEGRAL PART, it is
*ACTIVITIES THAT RELATE TO COMMERCIAL classified as INTANGIBLE ASSET.S
PRODUCTION DO NOT RESULT TO RESEARCH
AND DEVELOPMENT.

INTERNALLY DEVELOPED COMPUTER

SOFTWARE

- Costs incurred in creating a computer

software product shall be charged to
EXPENSE
- IF TECHNOLOGICAL FEASIBILITY IS
ESTABLISHED, costs incurred should be
capitalized which includes THE COST OF
CODING AND TESTING AND THE COST
TO PRODUCE THE PRODUCT MASTERS

Amortization of computer software

- Shall reflect the pattern in which the future

economic benefits are expected to be
consumed by the entity
- If such pattern cannot be determined
reliably, THE STRAIGHT LINE METHOD IS
USED

Impairment of Computer Software

- Cost is amortized at the end of reporting

period over the useful life
- Tested for impairment whenever there is an
indication of impairment at the end of
reporting period.