6 Intangible Assets - IAS 38

Question 1

What does IAS 38 state?

1.
2.
3.

Answer 1

• assets are recognized if the asset is characterized by the following properties
  1. the asset is IDENTIFIABLE (i.e. is capable of being seperated or divided from the entity, like sold, transferred, licensed, rented or exchanged / and it arised from contractual or other legal rights such as a patent)
  2. if the asset is CONTROLLED by entity

Question 2

What does it mean if an asset…

1. is identifiable?
2. is controlled by an entity?
3. gives future economic benefits

Answer 2

1. is capable of being seperated or divided from the entity, like sold, transferred, licensed, rented or exchanged / and it arised from contractual or other legal rights such as a patent)
2. entity has power to obtain the future economic benefits flowing from the underlying resource and to restrict others from consumption of these benefits
3. potential future economic benefits identified with reasonable certainty

Question 3

What are examples from intangible assets?

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2.
3.
4.

Answer 3

• marketing related intangible assets: trademarks, newspaper, internet domains, …
• technology related intangible assets: based on e.g. patent, databases, design, recipes, …
• customer or supplier related: licensing and use rights (airport landing slots and customer lists
• artistic related: arise from rights to benefits; royalties from artistic works (plays, books, films, music)

Question 4

What´s an Active Market?

1.
2.
3.

Answer 4

• items traded are homogenous
• willing buyers and sellers can normally be found at any time
• prices are available to the public

Question 5

Is the expected pattern of revenues of future economic benefits of assets an acceptable basis for amortization?

1.
2.
3.

Answer 5

• problem: revenue based methods to calculate the depreciation of an asset
• revenues is NOT the consumption of the economic benefits of assets
• so you CANNOT use revenues as a basis for amortization!!

Question 6

IAS 38 required the disclosure of the following:

1.
2.
3.
4.
5.

Answer 6

1. whether useful lives are indefinite or finite
2. amortisation methods for intangible assets with finite useful lives
3. the gross carrying amount and accumulated amortisation at the beginning and end of the period
4. increases/ decreases from revaluations and from impairment losses recognised or reversed directly in equity (IAS36)
5. for R&D, disclosure of charge for research and development in the period

Question 7

How do you do amortisation for intangible asset with indefinite life?

1.
2.
3.

Answer 7

• you dont
• instead it is subject to annual impairment reviews under IAS 36 (Chapter 5)
  -> if recoverable amount is smaller than carrying amount, you have to do impairment test

Question 8

Under IAS intangible assets,

1. research expenditure…
2. development expenditure…

Answer 8

1…. must be expensed
2. must be capitalised provided a strict set of criteria is met (technical feasibility + intention to complete and use and sell it + ability to use or sell asset + how the intangible asset will generate probable future economic benefits)

Question 9

Development must be recognised if entity can demonstrate all of the following…

1.
2.
3.
4.
5.
6.

Answer 9

1. technical feasibility of completing the intangible asset
2. intention to complete the intangible asset and use or sell it
3. the ability to use or sell the intangible asset
4. how the asset will generate probable future economic benefits
5. availability of adequate technical financial and other resources to complete the development and to use or sell the intangible asset
6. its ability to measure reliably the expenditure attributable to the intangible asset during its development

Question 10

1. Formula Amortisation
2. Formula Depreciation

Answer 10

1. (sales/ total sales ) * capitalized development expenditures
2. (costs - residual value)/ years