CHAPTER 7: INTANGIBLE ASSETS

Intangible Assets

are identifiable NON-monetary assets without physical substance: they are in the form of rights, privileges, and competitive advantages

• recorded at cost; 

•  At disposal, the carrying value is removed, and any gain or loss is recognized.

Three (3) key attributes of an In. Asset:

• Identifiability – when it is separable, transferred, licensed, rented, or exchanged

• Control – the entity has the power to obtain the future economic benefits flowing from the underlying resource and restrict the access of others to such benefits.

• USe of Future Economic Benefit

At the start, intangible assets are recorded at cost, which includes:

• Purchase price (plus import duties and non-refundable taxes)
  
  

• Direct costs like:
  
  

  • Testing the asset
    
    

  • Employee benefits during development
    
    

  • Professional fees

Intangibles can be acquired:

1.

Separate purchase – Buying the intangible asset directly.

2. As part of a business combination – Acquiring the intangible through a company merger or acquisition.

3. A government grant – Receiving the intangible asset via government aid or support.

4. Exchange of assets – Obtaining the intangible by trading another asset.

5. Self-creation (internal generation) – Creating the intangible within the company itself, like developing software or brand names internally

CATEGORIES OF IN. ASSETS

• Marketing-related intangibles - marketing or promotion of products or services.

• Customer-related intangibles - built from repeated transactions and may include customer data like names, contact info, and buying history.

• Artistic-related intangibles - involve ownership rights to literary works, musical works, pictures, photographs, videos, and audio-visual materials. Protected by copyrights.

• Goodwill (has indefinite life) - an intangible asset that arises ONLY when an exchange transaction involves purchase of an entire existing business or a business combination. 

  • Goodwill is the extra amount paid when buying a business above the fair value of its net assets (assets minus liabilities).

• It only exists when buying a whole business, not individual assets

• It shows the value of things like brand, reputation, or customer loyalty that aren’t listed as separate assets.

• Technology

• Contract