Chapter 3 - Intagible Assets

Question 1

Intangible asset

Answer 1

An identifiable non monetary asset without physical substance.

e.g. Licences and quotas, intellectual property, brand names, trademarks.

1. It is separable - the asset can be brought or sold separately from the rest of the business.
2. It arises from legal/contractual rights - arise from purchasing an entire company.

It must meet the normal definition of an asset.

1. Controlled by the entity as a result of past events.
2. A resource from which future economic benefits are expected to flow.

Question 2

Measurement after initial recognition

Answer 2

1. The cost model:
   Should be carried at cost less amortisation and any impairment losses.

An intangible asset with a finite useful life must be amortised over that life, normally using the straight line method with a zero residual value.

An intangible asset with an indefinite life should not be amortised and should be tested for impairment annually.

2. The revaluation model:

May be revalued to a carrying amount of fair value less subsequent amortisation and impairment losses.

Fair value should be determined by reference to an active market.

Question 3

Goodwill

Answer 3

An asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognised.

Question 4

Fair value

Answer 4

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 5

Research

Answer 5

Original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding.

Question 6

Development

Answer 6

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.

Question 7

Accounting treatment

Answer 7

Research expenditure: write off as incurred to the statement of profit or loss.

Development expenditure: recognise as an intangible asset if and only if an entity can demonstrate

1. Probable future economic benefits arising from the asset through sale or internal cost savings.
2. Intention to complete the intangible asset and use or sell it.
3. Resources available to complete the development and to use or sell the intangible asset.
4. Ability to use or sell the intangible asset.
5. Technical feasibility of completing the intangible asset so that it will be available for use or sale.
6. Expenses attributable to the intangible asset during its development can be measured.