Intangible assets IAS38

What is the definition for an intangible asset?

An identifiable non monetary asset without physical substance

When can we recognise intangible assets?

1. It is probable that future economic benefits will flow to the entity

2. The cost can be measured reliably

What are the 3 sources that intangible assets come from?

1. Acquired seperately from 3rd parties

2. Acquired as part of a business combination of another entity

3. Internally generated

What is the initial measurement for Intangible assets seperately acquired from third parties?

At its cost. This includes purchase price and any costs directly attributable to bringing asset location in which it can operate.

What is the initial measurement for Intangible assets acquired as part of a business combination of another entity?

Measured initially at fair value

What is the definition for fair value?

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Should all internally generated Intangible assets be recognised as assets?

NO, except for development cost

What is the definition for research? (Internally generated IA’s)

Original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding.

• Insufficient certainty that future benefits will flow

• Recognised as an expense when incurred

What is the definition for development?

Application of research findings or other knowledge to a plan or design for the production of new or substantially improved items prior to commencement of commercial production.

• Recognised as an asset if six specific criteria are met

What are the 6 specific criteria that must be met for development to be classed as an asset?

• Probable future economic benefits and existence of market

• Intention to complete

• Resources are adequate

• Ability to use/sell

• Technical feasibility

• Expenditure can be measured reliably 

What is the summary of research and devlopment expenditure?

After initial recognition what are the two ways to measure Intangible Assets?

When we revalue at fair value what must fair value be measured reliably with reference to?

An active market

• A market where the items traded are homogenous and the willing buyers and sellers can normally be found at any time and the prices are available to the public

Should an entity assess the useful life of an intangible asset?

Yes

What are the two types of useful life of an intangible asset?

• Finite

• Indefinite- when there is no forseeable limit to the period over which the asset is expected to generate economic benefits for the entity

When do we carry out amortisation?

When the useful life of an intangible asset is finite

When do we carry out impairment review?

When an intangible asset has an indefinite useful life.

What is the amortisation vs impairment review?

What is the summary of the accounting treatment?

What does it mean to capitalise a cost?

Instead of recording the cost as an expense immediately, you record it as an asset on the balance sheet because it will provide future economic benefits

• The cost is then expensed gradually over time, usually via depreciation or amortization

What are some examples of IA’s with finite useful lives?

• Patents

• copyrights

• software

• customer contracts

When should an intangible asset be derecognised?

• It is disposed of

• No further economic benefits are expected from its use.

What does derecognition lead to?

Gains or losses on disposal.

What must be disclosed for intangible assets?

What do IAS38 state about amortisation?

The cost less residual value of an intangible asset with a finite useful life should be amortised on a systematic basis over that life, and that the amortisation method should reflect the pattern of benefits consumed.

When would we change the amortisation method?

If the pattern of consumption benefits has changed. E.g. future reductions in sales could be indicative of a higher rate of consumption of the future economic benefits embodied in an asset.

When we have an impairment what do we write it down to?

The recoverable amount

• An impairment loss is taken to SPL

What does IAS38 say about internally generated brands?

Internally generated brands,mastheads,publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets because costs incurred on the masthead cannot be distinguished from the costs of developing the business as a whole.