Borland Software Corporation Case Study Essay

A)In actual assets argon operational assets that lack physical substance. However, the future stinting realizes that be 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 reliableness of the information may not be as accurate. Additionally, the relevance of the entropy in the decision making process comes into question since the future benefits are unknown. Copyrights, franchises, thanksgiving, patents, and trademarks are just a few examples of intangible assets.Under by and with child(p) Accepted Accounting Principles (GAAP), intangible assets including patents, trademarks, copyrights, franchise agreements, customer lists, license agreements, allege backlogs, employment contracts, and noncompetition agreements should appear on a come withs symmetricalness airplane. GAAP requires intangible asset recognition (apart from goodwill) on the balance cerement if the said asset arises from contractual or other legal rights or is capable of being separated from the acquired entity.B)The apprise of goodwill in a smart sets balance sheet captures the unique measure of a company as a whole everywhere and above its acknowledgeable tangible and intangible assets. Goodwill can only be acknowledge as an asset on the balance sheet when a company engages in the acquisition of a whole of portion of another company. The esteem of goodwill is a residual value that is calculated by subtracting the average value of the acquired companys net assets from the fair value of the rumination exchanged (or grease ones palms price). Additionally, if the goodwill is developed internally (as opposed to purchase another company), the be incurred is disbursementd not capitalized.ProcessC)i)December 31, 2006253356= 57.1%443899December 31, 2007226688= 41.7%544017ii)26.5 one million million million of damage was recorded against our Co deGear reporting segmentiii)CodeGear,26509= 39.4%67340iv)In the text is says that they consider various selective information back breakers when determining these values such as discounted exchange flows and market similar transactions. This should be done at least annuallyv)Loss on hinderance of Goodwill26,509Goodwill26,509vi)On the statement of funds flows it shows that the impairment of goodwill was under the in operation(p) activities. Its shows that it is prominent the company a impairment of 26,506 in 2007vii)If there is a loss on impairment by goodwill and this has an effect on the notes flow statement I think that it should known to everyone in a footnote. It would be understandable if this get along 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 $68,20 5iii)Primary cause of the decrease in the value of intangible assets, net onBorlands balance sheet from 2006 to 2007 was amortization. All intangible assets are amortizable and thats why total collect amortization for 2007 was higher than 2006.iv) Amortization Expense$ 8,863,000Accumulated Amortization$8,863,000E)Software using cost was not capitalized in 2007 balance sheet. It was feasible because they were not sell any third party software and as soon as software was considered for technological feasible they put it up for sale. AnalysisF)Borland accounts for these exp give noticeitures by expensing the production costs of the publicize the first clock the advertise takes place. The costs from funding certain activities of the reseller channel are treated as advertising expenses.i) 200720062005Total advertising expense including funded advertising$2.3 million$2.8 million$4.4 millionTotal advertising expense / Total revenuesTotal advertising expense / Selling, general, and ad ministrative expenseii)This table shows that advertising spending has decreased to each one year. When taken in proportion to total 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 commit an actual decrease in advertising, just a decrease in newadvertising campaigns.iii)Looking at the assets of the company may help to show fluctuations in the current value at least in terms of book value. Even much than so, the companys stock price will help to jar against where investors see the current value of the company and its brands.G)i)For the purchase of Segue Software, Inc, the purchase price was allocated to the acquired assets and liabilities based on their estimated fair values on the look of acquisition with the remaining classified as goodwill. The developed technology, customer relationships, agreements, and trademarks are all amort ized over their respective periods. These amortizable intangible assets were calculated using the income tone-beginning by estimated the evaluate bullion flows from once the projects become viable and discounting them to the present value.ii)131,663/141,456 = 86.93%iii)In process investigate and development is research and development acquired from Segue Software, Inc that had not reached technological feasibility and had no alternative use. This amount was charged to operating expense upon completion 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 contrastive because the statement of cash flows only reports the amount of cash that actually changes hands.H)i)Based strictly upon the figures on Borlands monetary statement s, it seems as though the company has had a record of woeful financial performance from the years 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 retard is not as intemperate as it initially seems on the balance sheet.However, a closer command of the financial statements gives an explanation 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, but it is a demand since the future economic benefits of goodwill and intangibles is u ncertain. This results in increased expenses and lower 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 percept of Borlands value over the period from April 1, 2007 to March 31, 2008 is a prohibit one. The overall trend shows a decrease in value of Borlands stock price (beginning approximately 5.4/share and ending roughly 2.0/share), indicating invalidating perception of Borlands value. Borlands market capitalization at the end of 2007 was about $218,927,916 (total common shares outstanding) * (stock price) = (72,975,972 shares * $3/share = $218,927,916). The book value of beauteousness is $202,070,000 therefore the market value estimate is greater than th e book value by about $16.9 million as of December 31, 2007.iii)After reviewing the analysis in parts 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 repayable 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 press release regarding Q1 2008 data, the company states that the goodwill impairment charge of $13.3 million associated with CodeGear is an infrequent occurrence and was demand by GAAP standards. Borland did not believe that this accurately portrayed the financial status of the companys normal 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 but do not arise from the core operatio ns of the company.