CH 4. NCA - Intangible Assets Flashcards
What are Intangible Assets?
and
When are they recognised?
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.
How are intangible assets initially Measured?
Measuring and Intangible asset depends on how it is acquired.
There are 5 Ways to acquire an intangible asset:
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1. Separate Acquisition - (Licence or Intellectual property)
- Costs to purchase the assets
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2. Acquired as a part of a business combination -
- Fair Value (IFRS 13 Business Combinations)
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3. Internally Generated - Goodwill
- Never Recognised
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4. Internally Generated - Intangible Assets (R&D)
- Research Phase expensed
- Development Phase must meet “P.I.R.A.T.E”
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5. Acquired by Government Grant
- Asset & Grant at F.V
- Nominal Amount + Expenditure directly attributable for use
How do you measure an Internally generated intangible asset?
Goodwill, Marketing and R&D
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:
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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
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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’
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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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Development Expenditure is Capitalised, from the moment the intangible asset meets ALL the following criteria: (P.I.R.A.T.E)
How are intangible assets subsequently measured after recognition?
2 Models:
- Amortisation
or
- Revaluation: (IFRS 13) <span>Very unlikely as there won’t usually be an active market.</span>
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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
How should an intangible asset be Amortised?
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.
What are the Disclosure Requirements of IAS 38? (Intangibles)
- 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
4.4.6.1 Stakeholder perspective
To be completed