Chapter 2 - Intangible Assets Flashcards
What standard covers intangible assets?
IAS 38
What types of expenditure does IAS 38 apply to?
Advertising, training, start-up activities, research and development.
Rights under licensing agreements (e.g. motion pictures, video recordings, patents and copyrights)
What is an intangible asset per IAS 38.8?
Identifiable non-monetary asset that does not have physical substance
What types of assets are outside the scope of IAS 38?
- Goodwill under IFRS 3 Business Combinations
- Financial assets in IAS 32 Financial Instruments
- Exploration and evaluation assets under IFRS 6 Minerals
An intangible asset has to be identifiable under IAS 38. Why?
To distinguish it from goodwill
What does identifiable mean under IAS 38?
Either separable OR arises from contractual or other legal rights
Separable = can be sold, licensed or rented to another party on its own
Arising from contractual = arises from a legal right.
How should an intangible asset initially be measured?
At cost, per IAS 38.24.
Before recognition however, ensure it meets the definition of intangible assets, and:
(a) It is probable that future economic benefits from the asset will flow to the entity;
(b) The cost of the asset can be measured reliably.
Under IAS 38, if expenditure in incurred but where no intangible asset can be recognised, how should the expenditure be treated?
Recognise in the profit & loss.
Examples include start-up activities, staff training costs (even if directly related to a new asset), advertising and promotion, expenditure on relocating an activity.
True or false:
Under IAS 38, staff training should not be capitalised
True. Specifically to be treated as an expense under IAS 38.
True or false:
IAS 38 allows an entity to recognise internally generated goodwill.
False.
This is due to difficulties in measuring the costs reliably and it being difficult to distinguish the costs of generating an intangible asset from the general operation.
If expenditure is incurred during the research phase of R&D, how should these be treated?
Recognise as an expense as soon as incurred (IAS 38.54)
What are examples of Research costs that should be expensed and not treated as intangible assets per IAS 38.54?
- Search for alternative materials, devices, products or processes
- formulation, design, evaluation and final selection of possible alternatives of new or improved materials, devices, products, processes, systems or services.
During the development phase of R&D, how should costs be treated?
Typically, these costs will see the design and development of a new product, tool, process or system.
Can be recognised as an intangible asset, only where a number of stringent conditions can be satisfied.
Note: internally generated brands, mastheads, publishing titles, customer lists and similar items cannot be recognised as intangible assets.
Can mastheads be recognised as an intangible asset under IAS 38?
No.
What 3 characteristics should exist if an intangible asset is to be recognised under IAS 38.57?
- Technical feasibility to complete the asset, with intention / ability to use or sell it
- Probable future economic benefits and the availability of resources to complete the development
The ability to measure the development expenditure reliably.
Can customer lists be recognised as an intangible asset under IAS 38?
No.
If an intangible asset can be recognised, what costs can be attributed to it under IAS 38?
Directly attributable cost necessary to create, produce and prepare the asset for intended use.
- Materials and services consumed
- Employment costs of those directly engaged in generating the asset
- Legal, patent or licence registration fees.
Only expenditure incurred after the project has entered the development phase can be included.
If an entity is capitalising an asset, can they go back and capitalise costs from the research phase?
No. Only the development phase costs can be capitalised.
Can a website that has been developed solely for the purposes of promotion / advertising an entity’s product / services be capitalised as an intangible asset?
No.
A special intepretation (SIC 32) was issued for web site costs, stating it is not to be capitalised.
How should emission rights or schemes (e.g. carbon offset scheme) be treated?
Recognise as an intangible asset in accordance with IAS 38.
If anything issued by a government body differs to fair value of those rights, the difference is recorded as a government grant.
A provision should also be set up for the obligation to deliver any allowances, in accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets).
After an intangible asset has been recognised, how can these be treated or measured in future periods?
Similar to IAS 16 - an entity can chose to follow the cost model or revaluation model.
Revaluation can only be used if fair value can be determined by reference to an active market.
What is the cost model in relation to measurement of intangible assets?
Assets are held at their cost, less amortisation and impairment.
What is the revaluation model in relation to measurement of intangible assets?
Intangible assets are carried at a revalued amount.
Where an intangible asset is revalued, subsequent amortisation is based on the revalued amount.
What 2 types of life may an intangible asset have?
Finite or indefinite life.
