Chapter 3 - Intangible Assets Flashcards
What is an intangible asset?
an identifiable non-monetary asset without physical substance
What are some examples of intangible assets?
licences, quotas, patents and brand names
In order to be identifiable the asset must be what?
- be separable - capable of being separately bought and sold
- arise from legal or contractual rights
An intangible asset must be what to be recognised?
- meet definition
- generate a probable flow of economic benefit
- be capable of reliable measurement
Intangible asset are initially measured at what?
cost
intangible assets are amortised in what way?
- on a systematic basis over their useful lives
What happens if the assets useful like is indefinite?
the asset will not be amortised but will be subject to an annual impairment review
What is the cost model?
cost - amoritisation
what is the revaluation model?
revalued amount - amortisation
what does the revaluation model require?
demands the existence of an active market
what does a active market require?
- homogenous products
- willing buyers and sellers
- prices available to public
What happens with internally generated intangible assets?
cannot be capitalised, as the cost of their creation is not capable of reliable measurement
how is amortisation calculated?
over its useful life, with the annual expense shown in the SPL, normally using the straight-line method with a zero residual value
What are some examples of internally generated items that may never be recognised?
- goodwill
- brands
- mastheads (title of a newspaper or magazine)
- publishing titles
- customer lists
What is goodwill calculation?
The difference between the value of a business as a whole and the fair value of its identifiable net assets
What is goodwill?
the difference between the value of a business as a whole and the fair value of its identifiable net assets. Effectively the premium paid by an acquiring entity over and above the identifiable net assets
What is purchased goodwill?
when one business acquires another as a going concern
What is non-purchase goodwill?
also known as inherent goodwill. it may be an estimate that any entity places on internally generated reputation or staff motivation. not recognised as no separable value
What is negative goodwill?
may arise if an entity pays less for another entity than the value of that entity’s net assets.
where is negative goodwill recognised?
Will not be capitalised so will be recognised in the SPL as a credit
What is research?
original and planned investigation to gain new scientific knowledge and understanding
what is development?
the application of knowledge to create some new or improved material, product, service, process or device
What is the accounting treatment for research expenditure?
written off as incurred to the SPL
DR Expense
Cr Cash/payable
What is the accounting treatment for development expenditure?
capitalised only once all the recognition criteria is satisified
Dr Intangible asset
Cr Cash/payble
What is the development expenditure capitalisation criteria?
Probable flow of economic benefit
Intention to complete the project
Reliable measurement of development costs
Adequate resources available to complete the project
Technically feasible
Expected to be profitable
How are development costs amortised?
commences as soon as commercial production begins, either on straight-line or in relation to expected production levels
