Chapter 9 - Intangible Assets Flashcards
Define intangible asset
Identifiable non monetary asset without physical substance. Identifiable meaning capable of separate disposal
Is good will a intangible
Nope, because it cannot be seperately disposed of
An asset is only an asset if it is controlled by a entity, the cost of the asset can be reliably measured, further that there are probable economic benefits in the future. Can we regard worker skills and knowledge an intangible asset?
No, because a company cannot control this, i.e nothing stops an employee leaving the firm
Are research costs intangible assets?
No, because research costs are too distant from commercial production for it to be probable of an economic benefits inflow, thus these are an expense in the SPL
Can development costs be capitalized to intangible assets?
Only if ‘PIRATE is satisified
P - Probable flow of economic benefit
I - Intention to complete and use or sell
R - Reliable measure of cost
A - Adequate resource to complete the asset
T - Technical feasibility of completing the intangible
E - Expected to be profitable.
Once all the above are recognised, we can capitalise the depreication charge to SFP.
If not, we must write it off as an expense to SPL.
‘The prototype proved successful’ is an application of what pillar?
Evidence that it is technologically feasible
Can internally generated intangible assets be capitalised (e.g advertising campaign).
No because costs cannot be valued seperately to generating the business as a whole.
Overall, the three ways we can have intangibles are?:
Seperate acquisition, Internally Generated, acquisition as part of a business combination
What do we mean by acquisiton as part of a business combination
when one company buys another
When a intangible meets the recognition criteria, it should be initially measured at?
Cost + directly attributable costs
The subsequent measurement is based on?
Cost - accumulated amortisation and impairment losses
or
Revalued amount - accumulated amortisation and impairment losses
This revalued amount of an intangible is very rare. Why is this the case?
Because the intangible can only be revalued if the fair value can be determined from reference to an active market, an active market being in which items are homogenous.
When do we not ammoritse an intangible?
When it is viewed that the useful life is infinite, thus we instead do an annual impairment review
We can ammortise when our intangible has a finite life, and therefore we ammortise over its useful life. The residual value is always 0 unless?
A third party agrees to buy the asset at the end of the useful life
The demand for a product will stay at a high level for the next 3 years. What does this mean
This means the useful life = 3 years.
