ACCY231 WK9 L17-18 Intangible Assets

Question 1

What is the relavant standard?

Answer 1

NZ IAS 38

Question 2

What are some examples of intangible assets?

Answer 2

Examples of intangible assets
* Plays, operas, ballets
* Computer software
* Internet domain names
* Musical works, song lyrics
* Formulas, recipes
* Broadcast rights
* Film and TV programs
* Trademarks
* Construction permits
* Royalties on books
* Newspaper mastheads
* Carbon trading rights
* Franchise agreements
* Customer lists
* Data bases
* Patents
* Pictures and photographs
Package design, shape

Question 3

What is the definition of an intangible asset?

Answer 3

An identifiable, non-monetary asset, without physical substance.

Question 4

What does identifiable mean?

Answer 4

The asset is separable meaning that it is capable of being separated from the entity.
The asset could be separated if the entity could sell, license, rent, exchange, or transfer the asset. Or
The asset arises from contractual or other legal rights.

Question 5

What does monetary mean?

Answer 5

Monetary assets are money held and assets to be received in fixed or determinable amounts of money.

Question 6

What does without physical substance mean?

Answer 6

Relates to the ability to be able to see and touch an asset.

Question 7

What is the two recognition criteria of intangible assets at initial recognition.

Answer 7

1. It is probable that future economic benefits attributable to the asset will flow to the entity.
2. The cost of the asset can be measured reliably.

Question 8

What are the two categories of intangible assets that can never be recognised?

Answer 8

1. Specific internally generated assets
   Internally generated brands, mastheads, publishing titles, customer lists, and items similar in nature.
   Due to perceived inability to be able to measure the costs of these assets as they are internally generated.
2. Research costs
   Outlays classified as being on research can never be recognised as assets by the entity incurring those costs.
   These costs musts always be expensed.
   This non-recognition applies only to internally generated research and not to in-process research acquired from other entities.

Question 9

How are intangible assets to be measured at initial recognition?

Answer 9

An intangible asset must be measured initially at cost.
Cost is amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction.

Question 10

What are the three ways intagible assets can be obtained by an entity?

Answer 10

1. Separate acquisition
2. Acquisition as part of business combination
3. Internally generated intangible assets

Question 11

How are intangible assets measured when obtained in seperate acquisition?

Answer 11

Separate acquisition means that an entity acquires an individual intangible asset, not a group of assets.
In applying the recognition criteria, it is always assumed that the probability criterion is met.
Cost is the sum of the purchase price and directly attributable costs.
Purchase price is the fair value of what is given up by the acquirer plus the directly attributable costs incurred to get the asset into the condition where it is capable of operating in the manner intended by management.

Question 12

How are intangible assets measured when obtained in business combination?

Answer 12

An intangible asset acquired as part of a business combination will initially be measured at 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.

Question 13

How is it determined whether an internally generated asset should be recognised?

Answer 13

An entity must first classify the generation of the asset into
1. Research phase; or
2. Development phase

Question 14

What is the definition of research?

Answer 14

Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
Research activities include activities aimed at obtaining new knowledge as opposed to refining existing knowledge.
The outlays (amount of money spent on something) are expensed as they are incurred.

An investigation undertaken with the purpose of gaining new knowledge and understanding.

Question 15

What is the definition of development?

Answer 15

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

The application of research findings to plan or design the production of something new before the comercial production or use.

Question 16

What are the six recognition criteria for research outlays?

Answer 16

The recognition criteria are such than an intangible asset can only be recognised from development outlays if all the following criteria are met:
1. The technical feasibility of completing the intangible asset so that it will be available for use or sale
2. Its intention to complete the intangible asset and use or sell it
3. Its ability to use or sell the intangible asset
4. How the intangible asset will generate probable future economic benefits
5. The availability of adequate technical, financial, and other resources to complete the development and to use or sell the intangible asset
6. Its ability to measure reliably the expenditure attributable to the intangible asset during its development
These six criteria relate to determining the probability of future benefits from the project and the reliable measurement of the cost or expenditure. They are an expansion of the criteria

Question 17

Can internally generated goodwill be recognised?

Answer 17

Internally generated goodwill cannot be recognised as an asset.
Its cost cannot be reliably measured.
It could be measured by comparing fair value of entity and net fair value of identifiable assets and liabilities of the entity, however recognition requires reliable measurement of cost, not fair value.

Question 18

What is amortisation?

Answer 18

Amortisation has the same meaning as depreciation, execpt for intangible assets.
Amortation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

Question 19

How are intangible assets with an definite useful life amortised?

Answer 19

Amortisation period and amortisation method should be reviewed at least at the end of each annual reporting period.
Where the pattern of benefits cannot be determined reliably, the straight-line depreciation method is to be used.
The residual value is assumed to be zero.

Question 20

How are intangible assets with an indefinite useful life amortised?

Answer 20

Intangible assets with an indefinite useful life are not amortised.
Useful life should, however, be reviewed each year.
Irrespective of whether there is any indication of impairment, an entity must test an intangible asset with an indefinite useful life by comparing its carrying amount with its recoverable amount.

Question 21

What are the two measurement models that can be used subsequent to initial recogintion of intangible assets?

Answer 21

1. Cost model
2. Revaluation model

Question 22

What is the cost model?

Answer 22

The asset is recorded at initial cost and then is subject to amortisation and impairment.`

Question 23

What is the revaluation model? How is its application different for intangible assets?

Answer 23

The asset is carried at fair value and is subject to amortisation and impairment. Revaluations must be made with sufficient regularity.
With intangible assets, the revaluation model can only be used if the fair value can be measured by reference to an active market.
An active market is a market which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

Question 24

How are impairment losses treated with respect to intangible assets?

Answer 24

The carrying amount of the ingangible asset must be compared to its recoverable amount.
It may be difficult to determine the fair value less costs of disposale of an intangible asset given the lack of an active market, so value in use may be more appropriate for the recoverable amount.
Impairment losses cannot be reversed where the intangible asset is goodwill.

Question 25

What intangible assets must be impairment tested annually?

Answer 25

1. Intangible assets with indefinite useful lives
2. Intangible assets not yet available for use
3. Goodwill acquired in business combination

Question 26

When should intangible assets be derecognised?

Answer 26

1. On disposal; or
2. When the asset is fully consumed; no future economic benefits are expected