3 Intangible assets Flashcards
Define an intangible asset
Is an identifiable non-monetary asset without physical substance
What items are classed as an intangible asset?
- licenses and quotas
- intellectual property e.g. Patents and copyrights
- brand names and trademarks (goodwill)
What must as an asset be to be classed as intangible?
- Must be separable - be brought or sold separately from the business
- Arises from legal/contractual rights
What is the normal definition off an asset?
- Controlled by the entity as a result of past events
- A resource where future economic benefits will flow
How can an intangible asset be measured?
- The cost model
- The revaluation model
What is the cost model?
- Intangible asset is carried at cost less amortisation and any impairment losses
- Mainly used in practice
How does amortisation work?
It works the same as depreciation
Where is the annual amortisation expense shown?
In the profit and loss
What should an intangible asset with an indefinite useful life have done?
- not be amortised
- be tested for impairment annually
What is the revaluation model?
- Revalued to a carrying amount of fair value less amortisation and impairment losses
- Fair value should be determined by an active market
What is an active market?
Market in which transactions for the asset take place frequently and give valid pricing information.
How do you treat research expenditure?
Write of as incurred to the statement of P&L
How do you treat Development expenditure?
Recognise it as an intangible asset
When can development expenditure be classed as an asset?
P - probable flow of economic benefit
I - intention to complete the intangible asset
R - reliable measure of developed cost
A - adequate resources to complete the project
T - technically feasibility of completing the intangible asset
E - expected to be profitable
When should development expenditure be amortised?
Over it’s useful life and as soon as commercial production begins
