F2 - C5 - IAS 38 Intangible Assets Flashcards
(19 cards)
Define an intangible asset
An identifiable non-monetary asset without physical substance. It is a resource that is controlled by the entity as a result of past events which future economic benefits are expected
Examples of intangible assets
Trademarks
Copyright
Brand recognition
Patents
Goodwill
Customer Lists
What value do intangibles have?
Provide market advantage
Generally to do with increasing the company’s future worth
Easily destroyed by excessive carelessness
What is an indefinite intangible?
Assets that do not have limiting factors to their useful life
Not amortised as there is no limit to the benefit or cashflow generated from them
What are the 2 recognition criteria of an intangible asset
Probability that any future economic benefits associated with the asset will flow to or from the entity
Cost or value that can be measured reliably
If it fails to meet both it must be recorded as an expense
Once it has been expensed it cannot be re-instated
What classes as economic benefit?
Future economic benefit must be based on reasonable and supportable assumptions
Exceptionally high likelihood of gaining benefit
What amounts to the cost element of recognition
Must be able to reliably value the asset
The price the company pays plus any amounts incurred to get the asset into working order
Goodwill is not counted
Treatment of purchased goodwill
Value paid over the fair value of the asset on acquisition
Measured at the consideration paid less the fair value
Treatment of internally generated goodwill
Never considered an intangible asset
Treatment of research and development
Research costs must be separated from the development costs as they are treated differently
Treatment of research phase
Expensed when incurred
Likelihood of future economic benefit is uncertain
When no separation possible whole amount should be expensed
Treatment of development phase
To count as an intangible asset the follow must apply
- Technical feasibility of completing the asset
- Intention to complete
- Ability to use or sell
- Probability that the asset will generate future economic benefit
- Technical, financial and other resources to complete the project
- Measure the development costs
Treatment of projects acquired via acquisition
Recognised as an asset at cost
Additions subject to main recognition criteria
2 potential valuations models for intangible assets
Cost model
Revaluation model
What are the characteristics of the cost model?
Carried at cost less accumulated amortisation and impairment losses
Once chosen the asset will always be valued at historical cost
What are the characteristics of the revaluation model?
- Intangible assets being carried at re-valued amounts less, subsequent amortisation and impairment losses
- Based on fair market value and must be determined by an active market
- If no active market can be found only the cost model can be used
- If an active market can be found the same logic as rules for revaluing property plant and equipment are followed
- If the revalued amount is higher then the added amount is recognised in other comprehensive income as revaluation surplus
- If value decreases the difference should be recorded in other comprehensive income
- If the balance of the reserve account doesn’t cover the change the rest is in the expenses
How do you account for amortisation?
Straight line amortisation method should be chosen when the consumption pattern cannot be determined
Accounting for impairment
IAS 36 requires an entity to regularly check for impairment of its intangible assets
Important to make sure the carrying amount is not overstated and inflated
If there is a revaluation surplus the impairment losses should be offset against this first.
Any remining losses should be recorded as an expense.
Assets held for sale and discontinued operations
If the asset is part of a discontinued operation then it must be re-classified as an asset held for sale and discontinued operations. Amortisation of asset stops immediately at this point
