borland case study

Topics: Balance sheet, Generally Accepted Accounting Principles, Asset Pages: 6 (1362 words) Published: October 13, 2013


Borland Software Corporation Case Study

Concepts

A)Intangible assets are operational assets that lack physical substance. However, the future economic benefits that are derived from intangible assets are usually less certain than tangible operational assets. Due to this uncertainty, the valuation of these assets rely upon multiple estimations, therefore the reliability of the information may not be as accurate. Additionally, the relevance of the data in the decision making process comes into question since the future benefits are unknown. Copyrights, franchises, goodwill, patents, and trademarks are just a few examples of intangible assets. Under Generally Accepted Accounting Principles (GAAP), intangible assets including patents, trademarks, copyrights, franchise agreements, customer lists, license agreements, order backlogs, employment contracts, and noncompetition agreements should appear on a company’s balance sheet. GAAP requires intangible asset recognition (apart from goodwill) on the balance sheet if the said asset arises from contractual or other legal rights or is capable of being separated from the acquired entity.

B)The value of goodwill in a company’s balance sheet captures the unique value of a company as a whole over and above its identifiable tangible and intangible assets. Goodwill can only be recognized as an asset on the balance sheet when a company engages in the acquisition of a whole of portion of another company. The value of goodwill is a residual value that is calculated by subtracting the fair value of the acquired company’s net assets from the fair value of the consideration exchanged (or purchase price). Additionally, if the goodwill is developed internally (as opposed to purchasing another company), the costs incurred is expensed not capitalized.

Process

C)i)December 31, 2006253356= 57.1%
443899

December 31, 2007226688= 41.7%
544017

ii)26.5 million of impairment was recorded against our CodeGear reporting segment

iii)CodeGear,26509= 39.4%
67340

iv)In the text is says that they consider various data points when determining these values such as discounted cash flows and market comparable transactions. This should be done at least annually

v)Loss on Impairment of Goodwill26,509
Goodwill26,509

vi)On the statement of cash flows it shows that the impairment of goodwill was under the operating activities. Its shows that it is giving the company a loss of 26,506 in 2007

vii)If there is a loss on impairment by goodwill and this has an effect on the cash flow statement I think that it should known to everyone in a footnote. It would be understandable if this amount is minute and not shown but if it large and ongoing it is something that needs to be known and dealt with.

D)i)December 31, 2007(31658/544017) = 5.82%
December 31, 2006(40521/443899) = 9.13%
ii)The gross amount if recorded intangible assets at December 31, 2007 was $68,205
iii)Primary cause of the decrease in the value of intangible assets, net on Borland’s balance sheet from 2006 to 2007 was amortization. All intangible assets are amortizable and that’s why total accumulated amortization for 2007 was higher than 2006.

iv) Amortization Expense$ 8,863,000
Accumulated Amortization$8,863,000
E)Software development cost was not capitalized in 2007 balance sheet. It was feasible because they were not selling any third party software and as soon as software was considered for technological feasible they put it up for sale. Analysis

F)Borland accounts for these expenditures by expensing the production costs of the advertising the first time the advertising takes place. The costs from funding certain activities of the reseller channel are treated as advertising expenses.

i)

2007
2006
2005
Total advertising expense...
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