Intangible Assets (INCA)

Identifiable

Either:

• separable (capable of being separated or sold or transferred or licensed) individually OR with a related contract or identifiable asset or liability

• It arises from contractual or other legal rights (regardless of if those rights are transferable or separable from entity other rights/ obligations)

Recognition

• probable future economic benefits

• Cost measured reliably

Goodwill

• internally generated- do not recognise (not identifiable and cannot be measured reliably)

• Goodwill arising as a result of a business combination - recognise as intangible asset

Business combination

Transaction where acquirer obtains control of one or more businesses, usually results in need to prepare group accounts

Internally generated IA’s

• research (expense)

• Development (pirate)

PIRATE

• Probable future economic benefits

• Intention to complete and use/ sell asset

• Resources adequate to complete asset

• Ability to use/ sell asset

• Technical feasibility of completing asset

• Expenditure measured reliably

Expenditure excluded from recognition

• internally generated brands

• Mastheads

• Publishing titles

• Customer lists

• Advertising

• Promotional

• Relocation costs

Initial measurement

Acquired separately

• at cost

As part of business combination

• Fair Value (market value)

Internally generated

• cost - sum of expenditure incurred from date first meet PIRATE

• Directly attributable costs (materials, services, employee benefits, legal, amortisation of patents/ licenses used to generate the asset)

Amortisation

Amortise at END of development period

Subsequent measurement models

• cost - CA = cost - accum amortisation and impairment losses

• Revaluation (only when active market exists eg NOT brands).

  1. CA = FV less subsequent accum amortisation and impairment losses

  2. All other assets in same class also under revaluation model unless no active market (use cost model)

  3. Uncommon for active market to exist for IA’s (except taxi licenses or some patents)

  4. Revaluation frequent enough so CA does not materially differ from MV

Accounting for revaluations

Increase:

• First CR operating profit loss to extent it reverses a previous same asset decrease

• CR OCI revaluation surplus

• DR asset (CA)

Decrease

• Dr OCI (reduce reval surplus to nil) And/ or

• Dr operating profit or loss

• Cr asset (CA)

Revaluation surplus

May be amortised to retained earnings if a policy of a reserves transfer exists

Amortisation/ Impairment tests

Finite useful life (eg 10 year license)

• amortise over useful life

• Recognise amortisation in P&L unless part of cost of another asset

• Residual value normally nil

• Amortisation begins when asset available for use (ie not actually used if use is delayed)

• Review useful life and amortisation at year end and adj if necessary

Indefinite useful life

• do not amortise

• Conduct impairment reviews annually and where indication of possible impairment

• Review useful life at least annually

Derecognition

• on disposal OR

• No future economic benefits expected from its use or disposal

• Gain/ Loss: net disposal proceeds (proceeds less selling costs) less CA of asset

• DR cash (if any)

  CR Asset

  CR/ DR profit/ loss - operating

Revaluation model - on derecognition

Any balance on Revaluation Surplus (OCI) transferred to retained earnings

Dr OCI

Cr retained earnings