PAS 38: INTANGIBLE ASSETS

PAS 38

Applies to all intangible assets

Intangible assetsL an identifiable non monetary asset without physical substance, these may normally refer to intangible resources such as scientific or technical knowledge, design and implementation of new processes or systems, licenses, intellectual property, market knowledge and trademarks.

Separable and arises from contractual or other legal rights

An asset is identifiable if either is

Separable

capable of being separated and divided from the entity and sold, transferred, licensed, ented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so

Arises from contractual or other legal rights

regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.

Market and technical knowledge

meet the control criterion if the knowledge is protected by legal rights, such as copyrights, restraint of trade agreement or legal duty on employees to maintain confidentiality

Employees’ skills developed from training

not recognized as intangible assets because the entity does not control the future actions of its employees.

Not recognized as intangible assets

specific managerial or technical talent and customer relationships and loyalty

Treated as PPE

If the intangible component is an integral part of the asset as a whole

Fair value

Cost of an intangible asset in a business combination is its _____

Research and Development Phase

Internally generated intangible assets are classified into

Research phase

original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding, costs incurred here are expensed.

Example of research activities

Activities aimed at obtaining new knowledge

Example of research activities

The search for, evaluation and final selection of, applications of research findings or other knowledge.

Example of research activities

The search for alternatives for materials, devices, products, processes, systems or services

Example of research activities

The formulation, design, evaluation and final selection of possible alternatives for new or improved materials, devices, products, processes, systems or services.

Development phase

the application of research findings or other knowledge to a plan, design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.

Capitalization Criteria in Development phase

Technical feasibility of completing the intangible asset

Capitalization Criteria in Development phase

Intention to complete the intangible asset

Capitalization Criteria in Development phase

Ability to use or sell the intangible asset

Capitalization Criteria in Development phase

Probable future economic benefits

Capitalization Criteria in Development phase

Availability of adequate resources needed to complete the development; and

Capitalization Criteria in Development phase

Reliable measurement of the cost of the intangible asset.

Example of development activities

the design, construction and testing of pre-production or pre-use prototypes and models

Example of development activities

the design of tools, jigs, molds and dies involving new technology

Example of development activities

the design, construction and operation of a pilot plant that is not of a scale economically feasible fro commercial production; and

Example of development activities

the design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services

Research cost

if it is not clear whether an expenditure is a research or development cost

Research and development expense

research costs and development costs that do not quality for capitalization are disclosed as

Cost of internally generated intangible asset

includes all directly attributable costs necessary to create, produce and prepare the asset for its intended purpose, as from the date the recognition criteria and the conditions for capitalization of development costs have been met.

Organizational Costs

Costs incurred in establishing a new business, expensed when incurred

Example of Organizational Costs

legal and secretarial costs incurred in establishing a legal entity

Example of Organizational Costs

Preopening costs and preoperating costs

Cost and Revaluation Model

Subsequent measurement of Intangible assets

Cost model

intangible asset is carried at its cost less any accumulated amortization

Revaluation model

intangible asset is carried at its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses

Finite or Indefinite useful life

an entity shall assess whether the intangible asset has

Amortization

the systematic allocation of depreciable amount of an intangible asset over its useful

Shorter of useful and legal life

The depreciable amount of an intangible with a finite useful life is amortized over the

Zero

An intangible asset’s residual value is assumed to be zero unless the entity can demonstrate its ability to sell the intangible asset before the end of its economic life.