On June 30, Year 1, your client, the Vandiver Corp., is granted two patents covering plastic cartons
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Your client has already granted licenses under the patents to other manufacturers in the United States and abroad and is receiving substantial royalties. On July 1, Year 1, Vandiver commenced patent infringement actions against several companies whose names you recognize as those of substantial and prominent competitors. Vandiver's management is optimistic that these suits will result in a permanent injunction against the manufacture and sale of the infringing products and collection of damages for loss of profits caused by the alleged infringement. The financial vice president has suggested that the patents be recorded at the discounted value of expected net royalty receipts.
Required:
a. Explain what an intangible asset is.
b. (1) Explain what is meant by "discounted value of expected net royalty receipts." (2) How would such a value be calculated for net royalty receipts?
c. What basis of valuation for Vandiver's patents is generally accepted in accounting? Give supporting reasons for this basis.
d. (1) Assuming no problems of implementation and ignoring generally accepted accounting principles, what is the preferable basis of evaluation for patents? Explain.
(2) Explain what would be the preferable conceptual basis of amortization.
e. What recognition or disclosure, if any, is Vandiver likely to make for the infringement litigation in its financial statements for the year ending September 30, Year 1? Explain.
(AICPA Adapted)
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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Financial Statement Analysis
ISBN: 978-0078110962
11th edition
Authors: K. R. Subramanyam, John Wild
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