INTANGIBLE ASSETS Flashcards
(40 cards)
What is an intangible asset?
An intangible asset is an identifiable nonmonetary asset without physical substance.
An intangible asset must be controlled by the entity as a result of a past event and from which future economic benefits are expected to flow to the entity.
What PAS governs intangible assets?
PAS 38
What are the essential criteria in the definition of an intangible asset?
- Identifiability - distinguishable from goodwill
- Control - power to obtain future economic benefits and restrict access of others to those benefits
- Future economic benefits - access to revenue, cost-savings, or other forms of benefits.
T or F
Judgment based on internal evidence is exercised in assessing the degree of certainty of future economic benefits.
False. Judgment is based on EXTERNAL EVIDENCE.
What are the different methods of acquiring an intangible asset?
- Separate acquisition
- Acquisition as part of a business combination
- Acquisition by way of government grant
- Acquisition by exchange
- Acquisition by self-creation or internal generation
How is an intangible asset measured in a separate acquisition?
If an intangible asset is acquired by separate acquisition, its cost include:
- Purchase price
- Import duties and nonrefundable taxes
- Less trade discounts and rebates
- Cost of employee benefits arising directly from bringing the asset to its working condition
- Professional fees arising directly from bringing the asset to working condition
- Cost of testing the asset
If the intangible is DEFERRED beyond normal credit terms, it is MEASURED AT CASH PRICE EQUIVALENT, similar to installment method of acquiring PPE.
How is an intangible asset measured if it is acquired as part of a business combination?
If an intangible asset is acquired as part of business combination, it is measured in the following order of priority:
- Fair Value at date of acquisition - the FV of the intangible must be measured with sufficient reliability to be recognized separately from goodwill.
- If there is an ACTIVE MARKET, the asset is measured at the QUOTED PRICE OF AN IDENTICAL ASSET
- If there is no active market, the asset is measured at a PRICE OF A SIMILAR ASSET.
- FV of the asset is measured based on unobservable input developed by the entity using the best available information.
How is an intangible asset measured if it is acquired by government grant?
If an intangible asset is acquired as by government grant, it may be measured and recorded at EITHER:
- FAIR VALUE
- NOMINAL AMOUNT OR ZERO, plus any expenditures directly attributable to preparing the asset for intended use.
How is an intangible asset measured if it is acquired by exchange?
If an intangible asset is acquired by exchange, the measurement DEPENDS ON WHETHER THE EXCHANGE HAS COMMERCIAL SUBSTANCE OR NOT.
- If with commercial substance - Measured at FV
- If w/o commercial substance - Measured at the CARRYING AMOUNT OF THE ASSET GIVEN UP.
How is an intangible asset measured if it is internally generated?
The cost of an internally generated intangible asset comprises ALL DIRECTLY ATTRIBUTABLE COSTS NECESSARY TO CREATE, PRODUCE AND PREPARE THE ASSET for it to be capable of operating in the manner intended by management.
What is the treatment of internally generated goodwill?
Internally generated goodwill is not recognized as an intangible asset. It is EXPENSED WHEN INCURRED. Examples of internally generated goodwill are:
- Customer lists
- Internally generated brands
- Publishing titles
What is the treatment of subsequent expenditures relating to intangible assets?
Generally, subsequent expenditures relating to intangible assets ARE EXPENSED.
However, it may be capitalized if:
a. it is probable the future economic benefits attributable specifically to the subsequent expenditure will flow to the entity
b. The subsequent expenditure can be measured reliably
How are intangible asset measured after its recognition?
- Cost model - At cost less accumulated amortization
It is amortized over its useful life. - Revaluation model - at revalued amount less accumulated amortization and subsequent accumulated impairment losses.
T or F
An intangible asset can only be carried at revalued amount if there is an active market for the asset.
True.
If an intangible asset has an indefinite useful life, how is it measured?
An intangible asset with an indefinite useful life is not amortized, but is TESTED FOR IMPAIRMENT AT LEAST ANNUALLY.
What are the rules when an intangible asset has a residual value?
The residual value of an intangible asset is PRESUMED TO BE ZERO, EXCEPT WHEN:
a. A 3rd party has committed to buy the intangible at the end of its useful life
b. When there is an ACTIVE MARKET for the asset
The residual value is reviewed at the end of each year, and a change in RV is accounted for as a change in accounting estimate.
What are the necessary disclosures related to intangible assets?
- Whether useful lives are indefinite or finite, the useful lives and amortization rates
- Amortization method
- Gross carrying amount and accumulated amortization at the beginning and end of the period
- Amortization line item in income statement
- Additions, separately showing those internally generated and those acquired separately
- Intangible assets classified as held for sale
- Increases and decreases as a result of revaluation
- Impairment losses and reversals of impairment losses
- Net exchange differences on translation
- Carrying amount of intangible asset with indefinite life and the reason supporting the assessment of indefinite life
- Carrying amount and remaining amortization period of intangible assets that are material to the entity’s FS
- Carrying amount of intangible assets whose title is restricted or pledged as collateral security
- Contractual commitments for the acquisition of intangible assets
- Intangible assets acquired by way of government grant
- The amount of research and development expenditure recognized as expense during the period.
What is a patent?
A patent is an exclusive right granted by the government to an inventor enabling the grantee to control the manufacture/sale/use of the invention for a period of time.
Under US GAAP, it is a TECHNOLOGY-BASED intangible asset.
What is the default useful life of a patent?
20 years, in accordance with RA 8293 or the Intellectual Property Code of the Philippines.
T or F
A patent CANNOT BE RENEWED.
True. It cannot be renewed but its life can be extended beyond the legal life by a new patent for improvements and changes.
What costs related to a patent are capitalized?
- Purchase price
- Import duties and nonrefundable taxes
- Other directly attributable costs to prepare the asset for intended use
- If internally developed, costs include LICENSING AND OTHER RELATED LEGAL FEES
- Engineering/consulting/other costs incurred to develop the patent AFTER A PATENT APPLICATION HAS BEEN FILED, since the patent is now technically and commercially feasible.
How is a patent amortized?
The following rules shall be observed:
1. Original cost is amortized over the LEGAL LIFE (20 YEARS) OR USEFUL LIFE WHICHEVER IS SHORTER
- If a COMPETITIVE PATENT is acquired to PROTECT the life of the original patent, it is amortized over the remaining life of the old patent
- If a RELATED PATENT is acquired in order to EXTEND the life of the original patent, both shall be amortized over the EXTENDED LIFE.
What is a trademark?
A trademark is a symbol/sign/slogan/name used to mark a product to distinguish it from other products.
Under US GAAP, trademark is a MARKET-RELATED intangible asset.
What is the default or legal life of a trademark?
Under RA 8293, the legal life of a trademark is 10 years.
