Intangibles and foreign exchange transactions

Question 1

What is an intangible asset?

Answer 1

An identifiable non-monetary asset without any physical substance.
(Can be patents/copyrights)

they are capable of separate disposal and arise from contractual or other legal rights.

Question 2

What are certain examples that aren’t intangibles?

Answer 2

goodwill - cannot be disposed of individually

peoples skills & knowledge - intangibles must be controlled by the entity, staff can leave.

Question 3

When may an intangible asset be recognised?

Answer 3

1) if probable that future economic benefits will flow to the entity
2) cost of asset can be measured reliably
3) mirrors the recognition criteria given in the framework.

Question 4

What are the intangible accounting entry’s?

Answer 4

Dr Intangible asset cost
Cr Cash

Question 5

Is development costs an internal intangible?

Answer 5

Yes, this is an application of research findings/knowledge to produce new and improved materials, devices etc.

once a certain criterion is met all development costs on the project must be capitalised.

Question 6

What is the development criteria? PIRATE

Answer 6

P - probable economic benefits
I - intention to complete
R - resources available to complete project
A - ability to use/sell
T - technical feasibility of project
E - expenditure on asset can be measure reliably

Question 7

What happens if the PIRATE conditions of intangible aren’t met?

Answer 7

The expenditure must be written off as incurred and cannot be reinstated as an asset when all conditions are met.

Question 8

What costs can be capitalised in the development stage of an intangible?

Answer 8

• directly attributable ones like material consumed
• employment costs of those engaged in generating asset
• legal. patent or registration costs
• depreciation on non-current assets used for development

Question 9

What can an intangible asset be valued at?

Answer 9

• cost less accumulated amortisation and impairment losses
  or
• revalued amount less accumulated amortisation and impairment losses

Question 10

When may an intangible be revalued?

Answer 10

Only if the fair value can be determined by reference to an active marker.

if an item is revalued all assets of its class should be revalued.

Question 11

What are active markers?

Answer 11

• items are homogenous (the same)
• buyers / sellers found at any time
• prices available to public

Question 12

How to account for a revaluation?

Answer 12

• gains are credited to revaluation surplus unless they reverse an earlier impairment
• losses are debited to P&L expense unless they reverse an earlier revaluation.
• Any subsequent amortisation is based on the revalued amount.

Question 13

An intangible should be assumed to have 0 residual value unless?

Answer 13

• a third party has agreed to buy asset at end of useful life
• there is an active second-hand market that can be used to measure the residual value

Question 14

How to depreciate an intangible with an indefinite life?

Answer 14

don’t amortise but test for impairment annually.
Review the useful life each accounting period. If asset changes and then has a finite life it should be amortised.

Question 15

What should be recorded on disposal of intangible asset?

Answer 15

• Profit or loss on disposal recorded in SOPL for accounting period

Question 16

What additional disclosure requirements need to be made for intangibles?

Answer 16

• if asset had infinite or finite life.
• if indefinite why and what’s the carrying amount?
• individual asset if material
• amount of research and development expensed during the period.

Question 17

Foreign currency - historic rate?

Answer 17

Rate in place at the date the transaction takes place, can be called spot rate

Question 18

Foreign currency - Closing rate?

Answer 18

Rate at reporting date

Question 19

Foreign Currency - Average rate?

Answer 19

Average rate throughout the accounting period.

Question 20

What is functions currency?

Answer 20

The currency of the primary economic environment in which an entity operates. Cant choose your functional currency driven by certain indicators.

Question 21

What are the indicators?

Answer 21

• currency in which finance is generated
• currency in which cash generated from an entity’s operating actives.
• the countries whose competitive forces and regulations mainly influence the pricing structure of goods and services.

Question 22

What is presentational currency?

Answer 22

The currency in which the financial statements are presented

Question 23

What to do when there is an initial transactions?

Answer 23

• Translate using the historic rate prevailing at the transaction date
• Can also use average rate if does not fluctuate significantly during accounting period.

Question 24

What to do if there is a settled transaction?

Answer 24

if settled (payment or receipt occurred) during accounting period.
Must translate at the date of payment/receipt using the historic rate prevailing at that date.
- This may be different to initial transaction an exchange difference may arise, this is posted to P&L.

Question 25

What is a monetary asset/liabilities?

Answer 25

Items that are easily converted into cash e.g., receivables. payables, loans etc.

Question 26

What is a non-monetary asset/liabilities?

Answer 26

Items that give no right to receive or deliver cash like inventory and PPE

Question 27

What to do if there is an unsettled transaction at reporting date?

Answer 27

There would be an outstanding asset or liability on STOFP.
if it is a monetary item retranslate at closing rate.
if it is a non-monetary item leave at historic rate.

Question 28

What to do with exchange differences that have risen due to unsettled transaction?

Answer 28

They are posted to the P&L and generally disclosed within admin expenses.

Question 29

Non-monetary items held at cost model?

Answer 29

They are initially translated at the historic rate and carried forward at this value.

Question 30

Non-monetary items held at fair value?

Answer 30

Normally retranslated at the historic rate at date fair value is determined.
Any exchange difference are recognised directly in equity.
If change in fair value of item is recognised in P&L then any related exchange differences are also recognised.