Intangibles – Financial Reporting Advisory, LLC

GAAP Part 4.15 Intangible Assets Exception

Intangible Asset (ASC 805-20)

The ASC master glossary defines intangible assets as “[a]ssets (not including financial assets) that lack physical substance. (The term intangible assets is used to refer to intangible assets other than goodwill).” An acquirer must recognize, separately from goodwill, the identifiable intangible assets acquired in a business combination. An intangible asset is identifiable if it meets either the separability criterion or the contractual-legal criterion.

The Contractual Legal Criterion

Did you, the acquirer, acquire intangible assets arising from contractual or other legal rights? The fact that an intangible asset arises from contractual or other legal rights distinguishes it from goodwill. Such an intangible asset must be recognized separately from goodwill even if the acquirer is legally or contractually restricted from selling, transferring, or otherwise exchanging it. Restrictions on selling or otherwise transferring an intangible asset arising from contractual rights do not affect its recognition; however, such restrictions may affect its fair value measurement.

Yes

The Separability Criterion (ASC 805-20)

Did you, the acquirer, acquire intangible assets that meet the separability criterion? The intangible asset is separable (i.e., the “separability criterion”) if that asset is capable of being separated or divided from the acquiree and sold, transferred, licensed, rented, or exchanged. This could constitute a separation either individually or together with a related contract, identifiable asset, or liability. An intangible asset is separable regardless of whether the acquirer intends to transfer it. Reference the below examples.

Yes

Customer and subscriber lists are frequently licensed and thus meet the separability criterion. Even if an acquiree believes its customer lists have characteristics different from other customer lists, the fact that customer lists are frequently licensed generally means that the acquired customer list meets the separability criterion. However, a customer list acquired in a business combination would not meet the separability criterion if the terms of confidentiality or other agreements prohibit an entity from selling, leasing, or otherwise exchanging information about its customers.

Exception does not apply.

Because this asset meets the criteria of an intangible, it must be Fair Valued in the business combination.

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