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Amortization of Intangible Assets | Definition | Merits | Uses - YouTube
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clicking the bell Icon friends today we
have a topic which is
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amortization of intangible assets
intangible assets a part and parcel of
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every most of the every business well
what exactly is a motorized issue just
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like you know depreciation is there for
fixed assets that is the tangible assets
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we have amortization for the intangible
assets well there's a dialog box over
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here let what is there a motivation of
the intangible assets it basically
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refers to expensing or basically you
know putting the numbers on the debit
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side of the P&L account of the cost of
the intangible assets over the form over
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the useful life okay let me get you to
the utility of this particular table the
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intangible assets basically it refers to
you know those assets which are not we
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can tell physical which are not physical
in nature of it cannot be touched so
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they can be assets such as like you know
we have trademarks we have copyright
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patents
so on and so forth so a modernization of
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the intangible assets is similar to
depreciation but just like you know
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spreading out the cost of the asset
and is then it is similar to
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depreciation which is you know spreading
out the cost of the forms asset or the
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period of its lifetime so the main
difference between the amortization and
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what we call as depreciation
is that it no is the prior to its used
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in case of intangible assets and the
other one is used in case of the
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tangible so this is the one that is used
for intangible and this is the one that
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is used for tangible assets let's take
an example to understand this in a
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detail format let us consider a case of
business organization let's say this is
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a company called ABC which buys a patent
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and the patent is costing let's say
$15,000 for 15 years so the company can
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utilize the patents for the benefits
benefit of it for let's say for 15 years
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and the total value of the patents which
is amounting to 15,000 over it's useful
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life of 15 years so the company ABC will
amortize the expense 15,000 into 50
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divided by 15 which is $1,000 each year
and deduct the value from the asset of
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the patent on its balance sheet every
year so it's after the first year it
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will look something like this the
intangible assets will be at standing at
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14,000 so in this manner the total value
of the patent is expenses by the method
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of amortization during their patents
useful life let's take another example
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example of a 2 patent becoming
worthless after some years there can be
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some cases you know where the useful
life of the patent owned before 15 years
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does not actually count up to 15 years
okay let us consider after a period of
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let's say 5 years
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after the period of 5 years the
patent becomes worthless for the company
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ABC so the useful life of the intangible assets namely patent is reduced
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from 15 to 5 so for only 5 years because
of the assets can be amortized and it
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can be expensed for $1000 each year
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and in this case the remaining cost of
15,000 was the original because it is
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for the 5 years so $5,000 will deduct
so $10,000 which is the unamortized
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portion to be expenses together and the
value of patent will be reduced to the
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a 0 value on the firms balance sheet let
me take you another example example
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number 3 let's say there is another case
in which it comes and exists
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of the expenses
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in that terms of the patent so maybe
because of the break in the terms by the
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third party you can call that and in
such a case you know the form needs to
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hire a lawyer you can see you needs to
hire lawyers so in so let us say that
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you know the form of hired a lawyer who
charged e company with the cost of for
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let's say $10,000 and he
successfully defended the Patent
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successful and in this case such an
amount spent for the lawyer of rupees
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$10000 will be added to the
value patent and is amortized over the
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remaining useful life of the patent but
this is of the examples have worked out
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so as to make you understand now I'm
going to show you over here this is from
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the 10k filing you know Google's
amortization of the intangible assets it
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has patent customer relationships and
trade names and others so they have this
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three intangible assets they gross
carrying value then there have been a
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motorized as for the use for life and
after deducting that that is accumulated
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so depreciation and amortization will
always be no accumulated man in the net
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and the rest is going to be the net
carrying value so over here the net
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carrying value of patent is $2220
million and the remaining
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useful life is 3.8 years
so the amortization expense related to
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the patent and develop for 2018 for this
is for 2017 so for 2018 is gonna be
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2220 divided by the remaining
useful life that is 3.8
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years which comes to 584 your 584
million dollars right so this is how it
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has been found out now similar manner
for the customer relationship what you
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can do you have the net carrying value
standing at how much 96 the
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remaining useful life standing at 1.4 so you know the amortization
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expense related to the patent developed
for the customer relationship in 2018
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will be 96 divided by 1.4
year that will give you 68 million
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somewhere sort of and for the patent
again do the same thing 376 divided by
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4.6 that's gonna be 81
million so this is how it has been
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determined so I have shown you an
example of Google here now let's
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consider what are the uses of the
amortization of the intangible assets
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see amortization of the intangible
assets it can be used in two purpose it
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can be used for two purpose the first
one is being D it is the accounting
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purpose it is used for the accounting
purpose and the second one is for the
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tax deferment purpose
this other two great reasons behind it
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but the amortization whether is used for
two purpose our purposes are different
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from the each other when you to when in
used in case of tax purposes the actual
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lifespan of the assets is not considered
and only the you can say the base cost
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is amortized over the specific number of
years so intangible assets they are not
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at all easy as in case of the tangible
assets and there are in order
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regulations you can say there are X
which group certain assets under the
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category of intangible assets and you
know they give them a particular value
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now the amortization of the intangible
assets if what if it has invited
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infinite useful life see intangible
assets without a finite useful life that
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is an indefinite useful life are not
amortized but they are only what we call
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as reviewed so reviewed for what it is
reviewed for impairment
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whenever changes in the events or
circumstances you know they indicate the
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carrying amount of the asset may not be
recovering right now there are some of
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the advantages that you should be well
aware of of amortization of intangible
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assets see primarily the use of the
amortization in firms is - you can say
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reduce the tax burdens as long as you
know the asset is in use you can reduce
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the tax to be paid second it helps the
firm to show a higher value of asset and
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more income of the firm's financial
statement so after discussing the
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examples of Google and ROI examples let
me find little finally conclude on this
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the use of the amortization of the
intangible assets is beneficial for the
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memorization helps in assessing the
value of the amortization assets and
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with ease so at the same time it it
helps in assessing key benefits of
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following it so more ever it helps the
form by reducing the tax what only
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possesses the possesses and the
amortization capital expense helps
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deform always the always possess a
minimum financial security but that's it
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for this particular topic for amortization
of intangible assets so that's it for
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this particular topic if you have
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