CH 4. NCA - Intangible Assets Flashcards

1
Q

What are Intangible Assets?

and

When are they recognised?

A

An intangible asset is defined as:

‘an identifiable non-monetary asset without physical substance’

The asset must be recognised when:

  • Asset is controlled by the entity as a result of a past event
  • Expected to generate future economic benefits for the entity
  • The cost can be measured reliably.
  • The asset is identifiable:
    • Arises from contractual/Legal Rights
    • is separable (able to separate and sell from other assets)

e.g

  • Goodwill acquired in a business combination
  • Computer software
  • Patents
  • Copyrights
  • Motion picture films
  • Customer list
  • Mortgage servicing rights
  • Licences
  • Import quotas
  • Franchises
  • Customer and supplier relationships
  • Marketing rights.
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2
Q

How are intangible assets initially Measured?

A

Measuring and Intangible asset depends on how it is acquired.

There are 5 Ways to acquire an intangible asset:

  • 1. Separate Acquisition - (Licence or Intellectual property)
    • Costs to purchase the assets
  • 2. Acquired as a part of a business combination -
    • Fair Value (IFRS 13 Business Combinations)
  • 3. Internally Generated - Goodwill
    • ​Never Recognised
  • 4. Internally Generated - Intangible Assets (R&D)
    • Research Phase expensed
    • Development Phase must meet “P.I.R.A.T.E”
  • 5. Acquired by Government Grant
    • Asset & Grant at F.V
    • Nominal Amount + Expenditure directly attributable for use
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3
Q

How do you measure an Internally generated intangible asset?

Goodwill, Marketing and R&D

A

2 Main types of internally generated assets:-

1. - Goodwill, Marketing, I.P rights internally generated - are never recognised/Capitalised. (ethical issue, difficult to measure and can be taken advantage of by management)

2. - Research & Development - Split in 2 areas:​

  • ​Research Phase -‘original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding’
    • Research costs are expensed at all times
  • Development Phase. - 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’
    • ​Development Expenditure is Capitalised, from the moment the intangible asset meets ALL the following criteria: (P.I.R.A.T.E)
      • Probable future economic benefit
      • Intention to complete and use/sell an asset
      • Resources available to complete the asset for use or sale
      • Ability to use or sell
      • Technically feasible of completing the asset
      • Expenditure can be measured reliably
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4
Q

How are intangible assets subsequently measured after recognition?

A

2 Models:

  • Amortisation

or

  • Revaluation: (IFRS 13) <span>Very unlikely as there won’t usually be an active market.</span>
  • If it is used the following RULES MUST be applied:
    • F.V reliably measured with reference to active market
    • Entire Class must be revalued at the same time
      • If an asset in the class can not be revalued, use the cost model
    • Regulery revalued so that carrying amount does not differ from F.V
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5
Q

How should an intangible asset be Amortised?

A

The intangible asset should be

- Assets with Finite useful life is amortised over its useful life (Normal cost model)

  • *- Begins when the asset available for use
  • Residual Value assumed to be £0 - Nil
  • UEL and Amortisation method reviewed annually**
  • Assets with an Indefinite useful life should not be amortised but IAS36 requires an annual test for impairment.
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6
Q

What are the Disclosure Requirements of IAS 38? (Intangibles)

A
  • The amortisation methods used
  • For intangible assets assessed as having an indefinite useful life, the reasons supporting that assessment
  • The date of any revaluations, if applicable, as well as the methods and assumptions used
  • A reconciliation of the carrying amount of intangibles at the beginning and end of the reporting period
  • The amount of research and development expenditure expensed in the period
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7
Q

4.4.6.1 Stakeholder perspective

A

To be completed

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