Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable?
A company might enter into the contract of the interest rate swap contract to set off the fixed payment of the debt obligation against the fixed payment swap.
An interest rate swap contract means the exchange of interest rates between two parties.
Whenever a company enters into an interest rate swap, the company wants to hedge the fair value of a certain fixed debt obligation. From this, the company wants to set off its fixed debt obligation with the payment received from the contract. This leads to a fall in the interest rate that increases the value of the swap contract. The swap contract is a very important part of risk management. It is directly related to the interest rate and affects the fixed debt obligation. Hence, the main reason for receiving the fixed interest payment is to set off against fixed debt obligations.
The following is a list of items that could be included in the intangible assets section of the balance sheet.
1. Investment in a subsidiary company.
3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.
4. Lease prepayment (6 months’ rent paid in advance).
5. Cost of equipment obtained.
6. Cost of searching for applications of new research findings.
7. Costs incurred in the formation of a corporation.
8. Operating losses incurred in the start-up of a business.
9. Training costs incurred in start-up of new operation.
10. Purchase cost of a franchise.
11. Goodwill generated internally.
12. Cost of testing in search for product alternatives.
13. Goodwill acquired in the purchase of a business.
14. Cost of developing a patent.
15. Cost of purchasing a patent from an inventor.
16. Legal costs incurred in securing a patent.
17. Unrecovered costs of a successful legal suit to protect the patent.
18. Cost of conceptual formulation of possible product alternatives.
19. Cost of purchasing a copyright.
20. Research and development costs.
21. Long-term receivables.
22. Cost of developing a trademark.
23. Cost of purchasing a trademark.
(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.
(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.
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