a. i. In general, what is an intangible asset? Give several examples of intangible assets.

ii. Which intangible assets appear on a company's balance sheet under U.S. generally accepted accounting principles (GAAP)? Describe how U.S. GAAP determines whether an intangible asset is included in the balance sheet.

iii. Briefly describe how the accounting for intangibles differs under International Financial Reporting Standards (IFRS). To answer this question, you might use the Internet and search for International Accounting Standard (IAS) 38, the standard pertaining to intangible assets. In particular, explain the accounting for internally-generated intangibles under IAS 38.

iv. In your opinion, which accounting treatment (U.S. GAAP or IFRS) provides more-relevant disclosures about internally generated intangibles'? Which treatment provides more-reliable information?

b. What does the value of goodwill on a balance sheet capture (that is, how does a company determine when and at what amount to record the value of goodwill)?

c. Refer to Cisco System's balance sheet and Notes 2 and 4 for information relating to goodwill.

i. What percentage of total assets consists of goodwill at July 27, 2013 (the end of fiscal 2013)?
At July 28, 2012 (the end of fiscal 2012)?

ii. What is the primary cause of the increase in the value of goodwill on Cisco's balance sheet
from 2012 to 2013?

iii. Note 2, sections (i) and (w) describe Cisco's accounting for goodwill recorded on the balance sheet including the revision to the standards enacted by Accounting Standards Update (ASU) No. 2011-08. Describe the multi-step process that Cisco uses to evaluation whether goodwill has been impaired. Describe how Cisco might determine the fair value of a business unit and its goodwill in order to make this comparison.

iv. Did Cisco experience an impairment of its goodwill during fiscal 2013?

v. Goodwill impairments are sometimes referred to as noncash charges. Often, in press releases and other corporate communications, managers encourage readers to ignore these noncash charges. Comment on whether and when that makes sense.

d. Note 3 describes Cisco's 2013 acquisition of NDS Group Limited ("NDS") for cash totaling $5,005 million and reports the allocation of the purchase price to specific asset and liability accounts.

i. How did Cisco determine the allocation of the purchase price to specific tangible and intangible assets? Hint: see description of Business Combinations in the Summary of Significant Accounting Policies in Note 2.

ii. What percentage of the total (gross) assets acquired in the NDS acquisition (excluding liabilities assumed) are comprised of goodwill and other intangibles?

iii. Show the consolidating journal entry that Cisco made to record the purchase of NDS in 2013.

iv. Note 3 also describes 12 additional business acquisitions made by Cisco in 2013 for a total purchase price of $1,977 million. How does Cisco report the purchase transactions in Note 3 in the statement of cash flows in 2013? Why does the amount reported in the statement of cash flows differ from the total cash purchase price disclosed in Note 3?

e. Refer to Cisco's balance sheet and Note 4 for information relating to purchased intangible assets.

i. What percentage of total assets consists of purchased intangible assets, net, at July 27, 2013? At July 28, 2012? What type of events triggered the existence of these intangible assets?

ii. Cisco's purchased intangibles fall into one of two categories-those with finite lives and those with indefinite lives. Describe in your own words what these categories mean. How does the accounting for intangibles differ across these two types of intangible asset categories?

iii. What is the gross amount of recorded purchased intangible assets at July 27, 2013? What proportion of the purchased intangible assets at this date are finite-lived?

iv. Show the journal entry that Cisco made to record the amortization of purchased intangible assets for 2013. Ignore any income tax effects. Is any portion of the amortization in 2013 attributable to impairment of purchased intangibles?

f. Describe how Cisco accounts for expenditures for research and development (R&D) costs (guided by ASC 730) that it incurs.

i. Complete the following table relating to R&D expenses reported by Cisco:

ii. Comment on the trends in the R&D expense in dollars and related ratios in the table above. Does Cisco appear to be maintaining, increasing or decreasing its investment in R&D activity over this period?

iii. In following generally accepted accounting principles, Cisco's balance sheet does not include an intangible asset for the value created by internally-generated research and development costs. Describe how investors might use the information in the previous table to gain insights about changes in the value of Cisco's technology and other value that might be created by investments in research and development activities.

g. Cisco's closing stock price on July 26, 2013, the last business day before end of its fiscal year, was $25.50 per share.

i. Estimate Cisco's market capitalization at July 27, 2013, using information in the balance sheet about shares outstanding. Hint: market capitalization equals total common shares outstanding times stock price.

ii. How does this market value estimate compare to the book value of equity (that is, total shareholders' equity) at July 27, 2013? Compute Cisco's market-to-book ratio at July 27, 2013.

iii. What factors might cause the market value and book value of equity of a company to differ? What does Cisco's market-to-book ratio suggest about the market's interpretation of its net assets at this date?