IntAcc 6H1 – INTANGIBLE ASSETS

Intangible Asset

Identifiable non-monetary asset without physical substance.

Monetary Assets

Assets with fixed or determinable monetary value.

Identifiability

Asset must be separable and arise from rights.

Control

Company's power to benefit from the asset.

Future Economic Benefits

Expected revenues or cost reductions from the asset.

Long-term Assets

Assets providing benefits over multiple years.

Marketing-related Intangible Assets

Assets used for marketing or promoting products.

Customer-related Intangible Assets

Assets resulting from interactions with customers.

Artistic-related Intangible Assets

Ownership rights to creative works like music.

Contract-related Intangible Assets

Value from contractual arrangements like franchises.

Technology-related Intangible Assets

Assets related to technological innovations or patents.

Goodwill

Future benefits from acquired assets in a business.

Recognition Criteria

Probable future benefits and reliable cost measurement.

Initial Measurement

Intangible assets measured at cost upon acquisition.

Separate Acquisition

Cost includes purchase price and directly attributable costs.

Directly Attributable Costs

Costs necessary to prepare asset for use.

Non-inclusion Costs

Costs not capitalized, expensed immediately.

Internally Generated Intangible Asset

Asset developed internally, not recognized if goodwill.

Research Phase

Initial phase of developing an intangible asset.

Development Phase

Phase where asset is being prepared for use.

Business Combination

Acquisition of assets as part of a business merger.

Fair Value

Value of an intangible asset at acquisition date.

Government Grant

Intangible asset acquired at nominal cost from government.

IAS 20

Standards for accounting government grants and assistance.

Carrying Amount

Value of an asset recorded on balance sheet.

Commercial Substance

Transaction affecting future cash flows significantly.

Internally Generated Asset

Asset developed within the organization, costs capitalized.

Technical Feasibility

Ability to complete an intangible asset for use.

Probable Future Economic Benefits

Expectation of generating cash flows from asset.

Expense Recognition

Costs expensed unless meeting asset recognition criteria.

Identifiable Intangible Assets

Assets with specific rights, like patents or trademarks.

Unidentifiable Intangible Assets

Goodwill and intangible assets without specific costs.

Cost Model

Asset carried at cost minus amortization and impairment.

Revaluation Model

Asset carried at fair value minus amortization.

Amortization

Systematic allocation of asset cost over useful life.

Finite Useful Life

Limited period over which an asset provides benefits.

Accumulated Amortization

Total amortization expense recognized to date.

Impairment Loss

Reduction in asset's carrying amount below fair value.

Research Activities

Efforts to gain new knowledge or evaluate findings.

Development Activities

Efforts to create or improve products or processes.

Market Existence

Demonstration of demand for the intangible asset.

Technical Resources

Necessary tools and skills for asset development.

Financial Resources

Funds available to complete asset development.

Directly Attributable Expenditures

Costs directly linked to an intangible asset's development.

Amortization method

The amortization method used shall reflect the pattern in which the asset's future economic benefits are expected to be consumed by the entity.

Residual value

The residual value of an intangible asset with a finite useful life shall be assumed to be zero (0) unless there is a commitment by a third party to purchase the asset at the end of its useful life or there is an active market for the asset.

Intangible assets with indefinite useful lives

An intangible asset with an indefinite useful life shall not be amortized.

Impairment of Goodwill

Goodwill is not subject to amortization but is tested for impairment at least annually, or more frequently, if there is an indication for impairment.

Cash-Generating Unit (CGU)

It is the smallest group of assets that generate an independent cash flow.

Recoverable amount of CGU

It is the higher of the cash generating unit's fair value less cost to sell and its value in use.

Carrying value of CGU

It is composed of the carrying value of only those assets that can be attributed directly, or allocated reasonably to CGU.

Impairment loss of CGU

It is the excess of carrying value over its recoverable amount.

Impairment loss entry example

If the recoverable amount is P1,400,000 and the carrying amount is P1,600,000, the impairment loss is P200,000.

Impairment loss entry for goodwill

If the impairment loss is higher than the carrying amount of goodwill, reducing the goodwill to zero, any further impairment shall proportionately reduce the carrying amount of other assets in the group.

Derecognition of intangible assets

An intangible asset shall be derecognized on disposal or when no future economic benefits are expected from its use or disposal.

Required disclosures for intangible assets

An entity shall disclose the useful lives, amortization methods, gross carrying amount, accumulated amortization, and a reconciliation of the carrying amount.

Impairment reversals

Reversal on the impairment of a CGU increases the carrying value of the assets, other than goodwill.

Goodwill impairment reversal

The reversal on impairment in goodwill is not recognized, for IAS 38 Intangible Assets specifically restricts impairment reversals for internally generated goodwill.

Carrying value of CGU example

The carrying value of a group of assets identified as CGU includes Property, plant, and equipment (PPE) net of accumulated depreciation, Patents net of accumulated amortization, and Goodwill.

Impairment loss calculation example

If the carrying amount of the CGU is P1,600,000 and the recoverable amount is P1,200,000, the impairment loss is P400,000.

Decrease in carrying value example

If the carrying amount of goodwill is P240,000 and the impairment loss is P400,000, the decrease in the carrying value of PPE and Patents is P160,000.

Amortization rates disclosure

An entity shall disclose the amortization rates used for intangible assets with finite useful lives.

Gross carrying amount disclosure

An entity shall disclose the gross carrying amount and any accumulated amortization at the beginning and end of the period.

Line items in comprehensive income

An entity shall disclose the line item(s) of the statement of comprehensive income in which any amortization of intangible assets is included.

Additions disclosure

An entity shall disclose additions indicating separately those from internal development, those acquired separately, and those acquired through business combinations.

Impairment losses recognition

An entity shall disclose impairment losses recognized in profit or loss during the period in accordance with IAS 36.

Net exchange differences disclosure

An entity shall disclose net exchange differences arising on the translation of the financial statements into the presentation currency.

Other changes in carrying amount

An entity shall disclose other changes in the carrying amount during the period.