The financial statements of ePlay Digital Inc., a cable and entertainment-related company within the communications and media industry, show net intangibles of $ 2,055,580 without any goodwill. Within the framework of this document, accumulated depreciation is practically not considered, except for a comment on its consideration based on a 15-year period of use. Also, there were no or recorded impairment losses in this period, although the policies for analyzing such situations are set out in great detail. Callitas Health Inc., a biotechnology/pharmaceuticals company in the consumer products industry, claims net intangible assets of $ 4,367,000 in its financial statements. The amount of accumulated depreciation for them, according to statistics, is $ 440,000. At the same time, quite significant impairment losses were recorded for this fiscal period, amounting to $ 569,783 for intangible assets and $ 3,800,000 for goodwill.
Aurora Spine Corporation’s statistics, affiliated with the industrial products technology industry, have a net worth of $ 264,247 in intangibles, and its accumulated depreciation is $ 28,040. In addition, according to this report, the company has not suffered any impairment losses in the last fiscal year. Finally, the last company in question is Indigo Books & Music Inc., which specializes in specialty stores in the merchandising industry. The financial statement of this corporation claims a 2017 net intangible asset of $ 24,215,000. At the same time, their amortization amount is $ 7,922,000, and the company has not suffered any impairment losses.
Each of the companies studied invested a different amount of funds in the field of intangible assets. For ePlay Digital Inc., this value is 96% of all assets available from the company. Callitas Health Inc. has practically the same volume of intangible investments, equal to 95.8%. However, for Aurora Spine Corporation, the statistics are much lower – only 4.9% of all assets. Finally, Indigo Books & Music Inc shows even less value, investing in intangible assets only 3.8% of all funds available.
Analysis of the financial statements shows that both the type and size of the intangible assets of companies will vary according to their sector and industry. However, specific data were not available for all organizations. Thus, the report by ePlay Digital Inc. shows that a significant part of intangible assets previously included brands and trademarks, which is logical when working in the field of communication and media. Still, they were excluded from the balance sheet for fiscal 2017. In this context, this is most likely due to the ongoing restructuring of the organization. A similar problem is observed for Callitas Health Inc., which suffers enormous losses. It has practically no tangible assets, which should have been characteristic of the consumer products industry in another case. On the other hand, intangible assets consist of licensed patent rights necessary for implementing the pharmaceutical trade.
An example of how a successful organization can function is the Aurora Spine Corporation. Since the specialization of this enterprise is the field of technology among industrial products, part of the intangible assets here is minimal and consists, for the most part, in various intellectual rights. Another example is Indigo Books & Music Inc., which organizes specialty stores in the merchandising industry. The need for intangible assets is also little here. Hence, their share is insignificant and, according to the reports, consists mainly of computer software, costs for internal development, payment for a domain name, and retail lease.
According to the analysis of the financial statements of these companies, the policies applied to intangible assets are independent of their type or the type of industry of the organization itself. For almost all the considered organizations, intangible assets mainly included various intellectual rights, licenses, and permissions to use brands. However, even for Indigo Books & Music Inc, whose main intangible assets are software and development costs, the general methodology for calculating and analyzing assets remains the same. In some cases, only different useful lives of assets are considered depending on their characteristics. For example, the software has a useful life of 3-5 years, but a domain name has an unlimited life and therefore is not depreciated. However, all of these policies are reviewed annually at the end of the reporting period to determine potential impairment losses and analyze depreciation on a straight-line basis.
Of all the companies analyzed, only one reported impairment losses, and none of the companies surveyed reported reversals of losses on impairment for intangible assets. The financial statement of Callitas Health Inc. indicates losses both in general for assets and specifically for goodwill. Although the organization provides comments as to the reason for these losses, thus making a disclosure, the entity does not indicate its type. The impairment loss on intangible assets, as noted earlier, is $ 569,783 and, according to the company, is attributable to the decision of Callitas Health Inc. about the non-continuation of the use of the intellectual property. These losses can be described as accounting changes in the company’s policy. All reported goodwill in the amount of $ 3,800,000 has been transferred by the company to the impairment loss section. Callitas Health Inc. ruled immediately after the trade that it did not generate goodwill. These losses can be attributed to accounting errors, during which a transaction unnecessary for the company was made.
The Company has completed an impairment assessment at December 31, 2017, which included a peer based analysis. It was determined that there was no impairment of the intellectual property related to the C-103, ToConceive or 40J’s LLC acquisition. The impairment assessment used unobservable inputs and the valuation has been determined to be a level 3 measurement in the fair value hierarchy.
During the year, the Company decided not to proceed with the intellectual property acquired from RX Global. Thus, an impairment of $569,783 has been recorded.
The Company capitalized the cost of acquiring intellectual property. Carrying amounts are subject to impairment review annually and whenever there is an indication that an intangible asset may be impaired and where conditions exist, impairment is recognized. No impairment was recognized as of December 31, 2017 and 2016.
The useful life of the domain names have been deemed to be indefinite because there are no legal, regulatory, contractual, competitive, economic, or other factors that limit the useful lives of these assets to the Company.
Impairment testing for intangible assets is performed using the same methodology, CGUs, and groups of CGUs as those used for property, plant and equipment. The key assumptions from the value-in-use calculations for intangible asset impairment testing are also identical to the key assumptions used for property, plant and equipment testing. Impairment indicators were identified during fiscal 2018 for Indigo’s retail stores. Accordingly, the Company performed impairment testing but there were no intangible asset impairment losses or reversals for retail stores in fiscal 2018 (2017 – no impairment losses or reversals). All impairments and reversals are recorded as part of operating, selling, and administrative expenses in the consolidated statements of earnings and comprehensive earnings