Overview
Com Wire Company manufactures wireless transponders for satellite applications. Com Wire has recently acquired Martin Company, which is primarily known for its software communications development but also manufactures a specialty transponder under the trade name "MTech" that competes with one of Com Wire's products. Com Wire will now discontinue M-Tech and projects that its own product line will see a market share increase.
Nonetheless, Com Wire's management will maintain the rights to the M-Tech trade name as a defensive intangible asset to prevent its use by competitors, despite the fact that its highest and best use would be to sell the trade name. Com Wire estimates that the trade name has an internal value of $1.5 million but, if sold, would yield $2 million.
Answer the following with supporting citations from the FASB ASC:
- How does the FASB ASC Glossary define a defensive intangible asset?
- According to ASC Topic 805, "Business Combinations," what is the measurement principle that an acquirer should follow in recording identifiable assets acquired in a business combination?
- According to ASC Topic 820, "Fair Value Measurement," what value premise (in-use or in-exchange) should Com Wire assign to the MTech trade name in its consolidated financial statements?
- According to ASC Topic 350, "General Intangibles Other Than Goodwill," how should Com Wire determine the estimated useful life of its defensive intangible asset?
This case deals with defensive intangible assets. Assessing defensive intangible assets is an essential skill of a successful CPA. In addition, it is one of those topics that consistently appears on the CPA exam. Pay particular attention to the details of the ASC paragraph and determine how to effectively apply the concept.