Ch 5 Intangible Assets - IAS38 Flashcards
What defines an Intangible Asset?
IAS38 defines an Intangible Asset as an:
IDENTIFIABLE NON-MONETARY ASSET WITHOUT PHYSICAL SUBSTANCE.
E.g. Licences/patents/copyrights/trademarks/computer software/development costs.
What are Intangible Assets Criteria’s?
Must meet the definition of an asset & the frameworks definition criteria. In order to recognise intangible assets they must be separately identifiable.
1) IDENTIFIABLE - Can be separated & sold separately from other assets.
2) CONTROLLED BY THE COMPANY - Easy to determine who has the rights to use the assets.
3) RELIABLY MEASURED - Otherwise they cannot be recognised.
4) FUTURE ECONOMIC BENEFITS - Can determine (FEB) attached to that specific asset.
What is the measurement of an intangible asset?
Initially measured at COST & amortised on a systematic basis over their USEFUL LIFE.
DOUBLE ENTRY
Initial Measurement
1) COST
DR Intangible Asset ^ X
CR Cash/Payable - Asset v X
2) AMORTISATION over UEL (usually SL)
DR Amortisation Expense ^ X
CR Accumulated Depn (reducing the cost) v
If not amortised then impairment review.
DOUBLE ENTRY
Subsequent Measurement
1) COST MODEL
2) REVALUATION MODEL
Reliable estimate.
Only revalue if there is an active market.
R&D - RESEARCH
What is Research?
Where is it incurred?
What is the double entry?
Original investigation undertaken to obtain knowledge.
Research is always EXPENDITURE should be written off to the SPL as incurred (Never Capitalised).
Rev Expenditure
DR Exp (SPL) ^ X
CR Cash/Payable - Asset v
R&D - DEVELOPMENT
What is Development?
Where is it incurred?
Application of research findings to produce new or improved materials, products or processes.
EXPENDITURE should be CAPITALISED
& AMORTISED if meets the SPECIFIC CRITERIA.
- Otherwise written of to SPL
R&D - DEVELOPMENT
What is the Development Expenditure Capitalisation Criteria?
SECTOR
S eparate project E xpenditure identifiable & reliably measured C ommercially viable T echnically feasible O verall profitable R esources & intention to complete
INTERNALLY GENERATED INTANGIBLE ASSETS
Revenue Expenditure (Research Costs) What is the Double Entry?
Research Costs
DR - Expense (SPL) X ^
CR Cash/Payable - Asset X v
INTERNALLY GENERATED INTANGIBLE ASSETS
Development Costs
What is the Double Entry?
Development Costs - When criteria is met
DR - Intangible Asset X ^
CR Cash/Payable - Asset X v
INTERNALLY GENERATED INTANGIBLE ASSETS
Other Costs
What is the Double Entry?
Other Costs - Cost not identifiable
DR - Expense (SPL) X ^
CR Cash/Payable - Asset X v
Amortisation - Double Entry
Like depn over UEL
DR Amortisation Expense (SPL) ^
CR Acc Amortisation (Remove the cost) (SOFP)
What are the amortisation methods?
-Best reflect future benefits
or
-Straight Line
E.g. Amortisation
A business entity acquired a licence at a cost of £25K on 1st July 20X3 which gave it the exclusive rights to use a particular production process for 10 years from the date of purchase.
The licence is amortised over its UEL with a proportionate charge in the year of acquisition.
Required - What was the amortisation charge relating to the licence for the y/e 31st March 20X4
£25,000/10years = £2,500
1st July 20X3 to 31st March 20X4 = 9 month
£2,500X 9/12 = £1,875
