Chapter 4 - IAS 38 - Intangible Assets

Question 1

Definition

• Intangible Asset

Answer 1

An identifiable non-monetary asset without physical substance

Question 2

Definition

• Research

Answer 2

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

Question 3

Definition

• Development

Answer 3

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 4

Definition

• Amortisation

Answer 4

The systematic allocation of the depreciable amount of an asset over its useful life

Question 5

• Examples of Intangible Assets

Answer 5

• Patents
• Trademarks / Internet Domains
• Customer Lists
• Licensing, Royalty and Standstill agreements
• Franchises

Question 6

• In order to recognise an intangible asset, it must be;

Answer 6

• IDENTIFIABLE: ie; is separable and able to be transferred or sold
• CONTROL: The entity has the power to obtain future economic benefits from the asset
• FUTURE ECONOMIC BENEFITS: Probable that the asset will provide future economic benefits

Question 7

Research & Development

• Examples of Research

Answer 7

+ Activities aimed at obtaining new knowledge

+ The search for, evaluation & selection of research findings or knowledge

+ The search for alternative materials, devices, products, processes, systems or services

+ The formulation, design, evaluation and final selection of alternatives

Question 8

Research & Development

• Examples of development

Answer 8

+ The design, construction & testing of pre-production or pre-use prototypes and models

+ The design of tools, jibs, moulds, and dies involving new technology

+ The design, construction and operation of a pilot plant

+ The design, construction and testing of alternative or new materials, devices, products etc.

Question 9

Criteria for Research & Development to be recognised as an intangible asset:

Answer 9

All the criteria below must be met:

1. • The technical feasibility of completing the Intangible Asset so that it will be available for sale or use
2. • The intention to complete the Intangible Asset to use or sell.
3. • How the Intangible Asset will produce future economic benefits. Demonstrate there is a market for it etc.
4. • The availability of technical or financial resources to complete the development to use or sell the Intangible Assets.
5. • The ability to reliably measure the expenditure attributable to the Intangible Asset during its development.

Question 10

Amortisation of Finite Life Intangible Assets

Answer 10

• Amortisation will start when the asset is available for use, and will stop when available for sale or is de-recognised
• The residual value is assumed to be nil unless there is an agreement with a 3rd party to buy the asset at the end of its useful life. Or there is an active market for the asset which will give a reliable estimate of its value
• The method of amortisation should reflect the pattern of expected future economic benefits if possible
• If the pattern cannot be identified, straight line amortisation should be used

Question 11

Which Costs can be included in the development of internally generated Intangible Assets?

Answer 11

• Direct costs (materials, labour, legal fees)

EXCLUDED:- General Overheads

Question 12

The difference between Intangible NCA & Tangible NCA

Answer 12

Intangible = Assets which belong to the entity which have value but do not have material substance

Tangible = Assets which belong to the entity which have value and material substance substance