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FR Textbook > 3. Intangible assets > Flashcards

3. Intangible assets Flashcards

1
Q

Define an intangible asset

A

An identifiable non-monetary asset without physical substance

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2
Q

Give four examples of intangible assets

A
  • Licences and quotas
  • Intellectual property, e.g. patents and copyrights
  • Brand names
  • Trademarks
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3
Q

What is IAS 38?

A

Intangible assets

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4
Q

What are the two categories that an asset must fall under to be an intangible asset under IAS 38?

A

It is separable - The item can be bought or sold separately from the rest of the business

It arises from legal/contractual rights - Arise as part of purchasing an entire company

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5
Q

To be an intangible asset it must also meet what definition?

A

The definition of an asset

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6
Q

What is the definition of an asset?

A
  • Controlled by the entity as a result of past events

- A resource from which future economic benefits are expected to flow

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7
Q

What are the recognition criteria for an intangible asset?

A
  • It is probably that future economic benefits attributable to the asset will flow to the entity
  • The costs can be reliably measured
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8
Q

What should an intangible asset be initially recognised at?

A

Cost

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9
Q

What are the two options for measuring the cost of an intangible asset after initial recognition?

A
  • Cost model

- Revaluation model

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10
Q

What is the cost model for an intangible asset?

A

-The intangible asset should be carried at cost less amortisation and any impairment losses

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11
Q

Where is the cost model more commonly used for intangible assets?

A

In practice

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12
Q

How does amortisation work?

A

Same as depreciation

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13
Q

Where does the annual amortisation expense get shown?

A

Statement of profit or loss

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14
Q

How do we amortise an intangible asset with a finite useful life?

A

Straight line basis with no residual value

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15
Q

How do we amortise an intangible asset with an infinite useful life?

A
  • Should not be amortised

- Should be tested for impairment annually

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16
Q

What is the revaluation model for intangible assets?

A

The intangible asset may be revalued to a carrying amount of fair value less subsequent amortisation and impairment losses

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17
Q

What is fair value determined by?

A

By reference to active markets

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18
Q

What is described below?

A market in which transactions for the asset take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

A

An active market

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19
Q

What are two indicators of an active market?

A
  • The items traded within the market are homogeneous (identical)
  • Prices are available to the public.
20
Q

Why can we generally not capitalise internally generated intangible assets?

A

The costs associated with these cannot be identified separately from the costs associated with running the business

21
Q

Give 5 examples of internally-generated items that may never be recognised

A
  • Goodwill
  • Brands
  • Mastheads
  • Publishing titles
  • Customer lists
22
Q

When a brands name is separately acquired and can be measured reliably what should you do?

A

Recognised as an intangible non-current asset, and accounted for in accordance with the general rules of IAS 38

23
Q

What is described below?

The difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets

A

Goodwill

24
Q

What is described below?

Those assets and liabilities which can be identified and sold off separately without necessarily disposing of the business as a whole. They include identifiable intangible assets such as patents, licences and trademarks.

A

Separable net assets

25
Q

What is described below?

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

A

Fair value

26
Q

Give four examples why goodwill may exist

A
  • Reputation for quality of service
  • Technical expertise
  • Possession of favourable contracts
  • Good management and staff
27
Q

Describe purchased goodwill in three points

A
  • Arises when one business acquires another as a going concern
  • Includes goodwill arising on the consolidation of a subsidiary
  • Will be recognised in the financial statements as its value at a particular point in time is certain.
28
Q

Describe non-purchased goodwill in three points

A
  • Is also known as inherent goodwill
  • Has no identifiable value
  • Is not recognised in the financial statements.
29
Q

What is IFRS 3?

A

Business combinations

30
Q

What is described below?

An asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognised

A

Goodwill

under IFRS 3

31
Q

How do we treat negative goodwill?

A

As income

32
Q

What is described below?

Original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding

A

Research

33
Q

What is described below?

the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use

A

Development

34
Q

What is the accounting treatment of Research expenditure?

A

Write off as incurred to the statement of profit or loss.

Expense

35
Q

What is the accounting treatment of Development Expenditure?

A

Recognise as an intangible asset if, and only if, an entity can demonstrate the requirements

36
Q

What is the acronym for recognition of development as an asset?

A

PIRATE

37
Q

What does the P acronym PIRATE for recognition of Development as an asset stand for?

A

P - Probable flow of economic benefit from the asset, whether through sale or internal cost savings.

38
Q

What does the I acronym PIRATE for recognition of Development as an asset stand for?

A

I - Intention to complete the intangible asset and use or sell it

39
Q

What does the R acronym PIRATE for recognition of Development as an asset stand for?

A

R - Reliable measure of development cost

40
Q

What does the A acronym PIRATE for recognition of Development as an asset stand for?

A

A - Adequate resources to complete the project

41
Q

What does the T acronym PIRATE for recognition of Development as an asset stand for?

A

T - Technical feasibility of completing the intangible asset so that it will be available for use or sale

42
Q

What does the E acronym PIRATE for recognition of Development as an asset stand for?

A

E - Expected to be profitable, i.e. the costs of the project will be exceeded by the benefits generated.

43
Q

When should development expenditure be ammortised?

A

Should be amortised over its useful life as soon as commercial production begins.

44
Q

Can expenditure once treated as an expense, be reinstated as an asset?

A

No

45
Q

Can depreciation of plant used specifically on developing a new product, be capitalised as part of development costs.

A

Yes

46
Q

Can you capitalise internally generated intangible assets?

A

Nope

Except for development if its meets the PIRATE criteria.

47
Q

What internally generated intangible asset is specifically prohibited from being capitalised and why can this be a problem?

A

Internally generated brands

Some major assets in modern businesses can go unrecognised

FR Textbook (23 decks)

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