Borland Software Corporation Case Study Essay

A)Intangible pluss argon operable assets that lack physical substance. However, the future stinting returnss that ar derived from impalpable assets atomic number 18 ordinarily less certain than tangible in operation(p) assets. Due to this uncertainty, the valuation of these assets rely upon manifold estimations, therefore the reliability of the information whitethorn non be as accurate. Addition altogethery, the relevance of the info in the decision do process comes into question since the future benefits are unknow. Copyrights, franchises, seemliness, patents, and trademarks are just a hardly a(prenominal) examples of nonphysical assets.Under Generally evaluate Accounting Principles (GAAP), intangible assets including patents, trademarks, copyrights, franchise agreements, node lists, license agreements, order backlogs, employment contracts, and noncompetition agreements should step up on a comp some(prenominal)s sleep tack. GAAP requires intangible asset recogni tion (apart from goodwill) on the ratio canvas if the said asset arises from contractual or other legal rights or is open(a) of being separated from the acquired entity.B)The survey of goodwill in a bon tons balance sheet captures the unique cherish of a come with as a whole all over and above its recognizable tangible and intangible assets. Goodwill stack plainly be recognized as an asset on the balance sheet when a company engages in the skill of a whole of chance of some other company. The note economic harbor of goodwill is a relief order that is calculated by subtracting the becoming harbor of the acquired companys gain assets from the unobjectionable regard as of the consideration change (or purchase price). Additionally, if the goodwill is unquestionable internally (as opposed to purchasing another company), the cost incurred is put downd not capitalized.ProcessC)i)celestial latitude 31, 2006253356= 57.1%443899December 31, 2007226688= 41.7%544017 ii)26.5 one thousand million of irregularity was eternaliseed against our CodeGear reporting incisioniii)CodeGear,26509= 39.4%67340iv)In the text is says that they consider various data points when determining these surveys such as discounted funds devolves and marketplace comparable transactions. This should be done at least yearlyv)Loss on Impairment of Goodwill26,509Goodwill26,509vi)On the bid of hard currency f depleteds it utters that the impairment of goodwill was under the run activities. Its shows that it is giving the company a expiry of 26,506 in 2007vii)If there is a departure on impairment by goodwill and this has an effect on the change flow statement I think that it should known to everyone in a footnote. It would be comprehendible if this centre is minute and not shown exactly 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 meat if recorded intangible assets at December 31, 2007 was $68,205iii)Primary cause of the ebb in the value of intangible assets, net onBorlands balance sheet from 2006 to 2007 was amortization. All intangible assets are amortizable and thats why occur accumulated amortization for 2007 was high than 2006.iv) amortization Expense$ 8,863,000Accumulated Amortization$8,863,000E)Software information 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 proficient feasible they put it up for sale. abbreviationF)Borland accounts for these expenditures by expensing the production be of the denote the first time the advert takes place. The costs from funding certain activities of the reseller channel are treated as denote expenses.i) 200720062005 occur advertising expense including funded advertising$2.3 million$2.8 million$4.4 millionTotal advertising expense / Total revenu esTotal advertising expense / Selling, general, and administrative expenseii)This board shows that advertising spending has accrued apiece year. When taken in proportion to correspond revenues and general expenses, the percentage that composes advertising expense decreases each year. Since advertising costs are expensed the first time the advertising takes place, this may not re drink an actual decrease in advertising, just a decrease in newadvertising campaigns.iii)Looking at the assets of the company may attention to show fluctuations in the actual value at least in terms of obligate value. Even more so, the companys stock price will help to see where investors see the current value of the company and its brands.G)i)For the purchase of carry on Software, Inc, the purchase price was allocated to the acquired assets and liabilities based on their estimated fair values on the date of learning with the remaining classified as goodwill. The developed technology, customer rela tionships, agreements, and trademarks are all amortized over their respective periods. These amortizable intangible assets were calculated utilize the income approach by estimated the expected cash in flows from once the projects become viable and discounting them to the present value.ii)131,663/141,456 = 86.93%iii)In process explore and development is enquiry and development acquired from Segue Software, Inc that had not reached technological feasibility and had no alternative use. This center was charged to operating expense upon expiration of acquisition. The value was computed using the income approach by estimated the expected cash flows from the projects once commercially viable and discounting the cash flows to their present value.v)On the cash flows statement, an outflow of $115,939 million is describe for the acquisition. This amount is different because the statement of cash flows only reports the amount of cash that actually changes hands.H)i)Based rigorously upon the figures on Borlands fiscal statements, it seems as though the company has had a record of poor financial performance from the days 2005 to 2007. The companys net income reported an increasing loss in all three years ($29,832 in 2005, $51,953 in 2006 and $61,673 in 2007). Also, according to the Borlands balance sheet more than half of the companys assets are either goodwill or intangibles. Since these intangible assets have a more uncertain economic benefit than other tangible assets, the financial ascertain is not as strong as it initially seems on the balance sheet.However, a closer inspection of the financial statements gives an interpretation that doesnt reflect Borlands financial condition as poorly. Much of the companys operating expenses come from research and development and expenses relating to goodwill and intangibles (36% in 2007, 32% in 2006, and 31% in 2005). This is technically a violation of the matching principle, exactly it is a necessity since the future e conomic benefits of goodwill and intangibles is uncertain. This results in increase expenses and get earning in the current periods and decreased expenses/increased earnings in the future. The statement of cash flows shows that Borland spent a large portion of its expenditure on acquisitions of different companies (Legadero, TeraQuest, and Segue Software), technologies, and investments that include goodwill and intangibles, which further supports this analysis.ii)The markets experience of Borlands value over the period from April 1, 2007 to March 31, 2008 is a negative one. The overall trend shows a decrease in value of Borlands stock price (beginning approximately 5.4/ part and ending roughly 2.0/share), indicating negative perception of Borlands value. Borlands market capitalisation at the end of 2007 was about $218,927,916 (total earthy shares outstanding) * (stock price) = (72,975,972 shares * $3/share = $218,927,916). The book value of equity is $202,070,000 therefore the ma rket value estimate is greater than the book value by about $16.9 million as of December 31, 2007.iii)After reviewing the analysis in part h. i and h. ii, it is clear that the current value of Borlands goodwill and other intangible assets is undervalued. Although current earnings are low due to increased expenses in the current periods, the high market capitalization over the book value shows that investors believe the value of the company will be higher in the future.iv)In Borlands May 7, 2008 raise release regarding Q1 2008 data, the company states that the goodwill impairment charge of $13.3 million associated with CodeGear is an infrequent point and was required by GAAP standards. Borland did not believe that this accurately portrayed the financial status of the companys regulation operations and thus should be excluded in any investors assessment of the company. Borland has a valid point in this statement since these goodwill impairments affect the financial documents alon e do not arise from the cell nucleus operations of the company.