603.3 Accounting for Intangible Assets – Acquisition

ACQUISITION OF INTANGIBLE ASSETS: Intangible assets are acquired by PSU through purchase and license, donation; or internally generated within PSU.

PURCHASE: Purchases of intangible assets are processed through the Banner FIS accounts payable system. Purchases from proprietary funds (auxiliary enterprises and service departments) are recorded directly in the general ledger as an intangible asset using a A82xx general ledger account code. Purchases from non-proprietary funds are initially charged to a 408xx operating ledger expenditure account code and subsequently capitalized in the university’s investment in plant fund.

DONATION: Donation of an intangible asset is capitalized at its fair market value at date of donation. Donations of intangible assets follow the same accounting policies of the Fixed Assets Accounting Policies.

INTERNALLY GENERATED: Outlays for internally generated intangible assets typically involve multiple invoices and multiple payments.

• Payments of invoices are recorded throughout the year with a 408xx intangible asset expenditure account code in the Banner FIS operating ledger.
• Payroll applicable to internally generated intangible assets is also recorded in the Banner FIS operating ledger, but with the appropriate payroll expense account codes.
• Other costs directly associated with the internally generated intangible asset are recorded in the Banner FIS operating ledger, but with the appropriate services and supplies expense account codes.

At the end of the fiscal year, a worksheet is prepared to identify the operating ledger expenditures that should be capitalized as part of the intangible asset. The worksheet includes the expenditure amounts of the operating ledger for each combination of fund, organization, account, program, activity, and location code that should be capitalized as part of the intangible asset.

The completed worksheet is submitted to the university’s fixed assets accountant for capitalizing the expenditures to a new or existing intangible asset record in the Banner Fixed Assets system. Depending on the funding source of the expenditures made, the costs of the intangible asset are capitalized to a proprietary fund (auxiliary enterprise or service department) or the university’s investment in plant fund. The capitalization results in a credit to the E1001- NIP Change in Fixed Assets general ledger fund addition account which offsets the expenditures in the operating ledger that have been capitalized.

Expenditures capitalized to an internally generated intangible asset are recorded to an “in development” intangible asset account code, and moved from the “in development” account code when the intangible asset is completed and ready for amortization.

AMORTIZATION: Amortization is the accounting process of allocating the intangible asset’s capitalized cost to expense in a systematic and rational manner to those periods expected to benefit from the use of the asset. Amortization is not a matter of valuation but a means of cost allocation. Intangible assets are not amortized on the basis of a decline in their fair market value, but on the basis of systematic charges to expense.

An intangible asset has an indefinite useful life and is not amortized if there are no legal, contractual, regulatory, technological, or other factors that limit its useful life.

An intangible asset is amortized if there are legal, contractual, regulatory, technological, or other factors that limit its useful life. Useful life may vary among intangible assets depending on the above factors attributable to each intangible asset. The useful life should be the shorter of the intangible asset’s technological life versus it’s legal/contractual, and regulatory life.

PSU uses straight-line amortization with zero salvage value.

The procedures manual provides additional detail of amortization policies by account code.