4 Flashcards
What is an asset
A resource controlled by enterprise as a result of past events and from which future economic benefits are expected to flow to enterprise
What is a liability
Present obligation of enterprise arising from past events of which an outflow from enterprise of resources is expected
What are the elements of financial statements
Equity - residual amount - assets minus liabilities
income - Increases in equity, other than from contributions by ownersexpenses - decreases in equity, other than from distributions to owners
What is recognition
impact of transactions on assets and liabilities with profit as residual
What is the criteria for the recognition of an asset
Inflows are probable and cost or value is reliably measured
What features may suggest non-recognition
Existence uncertainty, measurement uncertainty, low probability of flows
What is an intangible asset
An identifiable non-monetary asset without physical substance
What three factors are necessary for an intangible asset to be in IAS 38
Identifiability, control, existence of future economic benefits 
What are examples of intangible assets
Patents , copyrights, research and development, trademarks, brand names
When should an intangible asset be recognised if future economic benefits are acquired, the principal
It is probable that those benefits will be received and assets cost or other value can be measured reliably
Recognition of an intangible asset, applying the principle
For purchased intangible assets, recognition is required in circumstances similar to those for other assets. For internally generated intangible assets recognition is limited to some development projects.
What two ways are there of purchasing intangible assets
Separately or as part of a business combination
What is research
Original and planned investigation undertaken with prospect of gaining new scientific or technical knowledge and understanding. Pursuit of knowledge without any defined commercial objective
What is development
Application of research findings or other knowledge to a Plan or design for production of new or substantially improved materials, devices, products, processes, systems or services before start of commercial production or use.
What are the theoretical possible treatments of research and development
Expense – research and development costs recognised as expenses in period in which they are incurred
Expense then reinstate – research and development costs recognised as expenses in period in which they are incurred but are reinstated as intangible assets if costs are subsequently expected to generate future economic benefits
Selective capitalisation – some research and development costs recognised as intangible assets while others recognised as expenses
Capitalisation – All research and development costs recognised as intangible assets
What approach does IAS 38 have to research and development
Selective capitalisation approach
Research is expensive
Development costs meeting six conditions must be capitalised
How should you treat computer software and website costs (intangible assets)
If purchased, they should be recognised as an asset and recorded (initially and subsequently) at cost. If internally generated, rules for research and development apply.
How are intangible assets initially measured
At cost, which is a gross concept
What is initial measurement of development
If recognised, initially measured at cost. Cost is sum of expenditure Incurred from date when intangible asset first meets all recognition requirements
What is the four stage process
- is it an asset (liability)
- is it a good enough assets (liability) to be recognised – probable inflows (outflows), reliably measured cost or value
- how should it be initially measured
- how should it be subsequently measured
What should be done to an asset if it has a finite life
It should be amortised on a systematic basis over useful life. For intangible assets, residual value is usually assumed to be zero
Are intangible assets with indefinite useful lives amortised
No but they must be tested for impairment each year
Are all asset recognisable
No. see if expenditure has led to a recognisable asset and if not treat it as an expense
