Chapter 8 - Intangible Assets

Question 0

WHEN CAN AN INTANGIBLE ASSET BE RECOGNISED?

Answer 0

The asset can only be recognised if:

• is is probable that future economic benefits will flow to the entity
• the cost of the asset can be measured reliably

Question 1

WHAT IS THE DEFINITION FOR AN INTANGIBLE ASSET?

Answer 1

It is an identifiable, non-monetary asset without physical substance.

Examples include:

• patents and copyrights
• licenses
• registered trade marks
• registered brand names
• franchises

Question 2

WHAT IS THE ACCOUNTING TREATMENT OF RESEARCH EXPENDITURE?

Answer 2

The research costs do not meet the recognition criteria; thus they can NOT be capitalised.

It should be written off to the income statement (either admin costs/ other costs).

Question 3

WHAT IS THE ACCOUNTING TREATMENT FOR DEVELOPMENT COSTS?

Answer 3

It must be capitalised if ALL of the following criteria is met:

• completion of asset is technically feasible
• there is intention to complete, use or sell the asset
• the asset can be used or sold
• the asset will generate future economic benefit
• adequate resource is available to complete (e.g finances)

(IAS 38, paragraph 57)

Question 4

WHAT IS THE ACCOUNTING TREATMENT FOR INTERNALLY GENERATED INTANGIBLES?

Answer 4

Never capitalise these.

Examples are advertising and marketing costs. We write of this expenditure to the income statement.

Question 5

WHAT IS THE TREATMENT OF A REVALUATION OF AN INTANGIBLE ASSET?

Answer 5

It may only be revalued if the fair value can be determined by reference of an active market.

An active market is a market in which:

• items are homogeneous (identical)
• buyers and sellers can be found at any time
• prices are available to the public

Most intangibles are not homogeneous so can not be revalued. Therefore they are recorded at cost less amortisation in the statement of financial position.

Question 6

HOW DO YOU AMORTISE AN ASSET WITH A FINITE USEFUL ECONOMIC LIFE?

Answer 6

You amortise the asset over its useful life starting from when it was made available for use. It should reflect the pattern of its useful life (i.e if you are given a breakdown of it revenue generation over its useful life then amortise it accordingly).

The residual value of the intangible will be nil unless:

• a third party has agreed to buy the asset at the end of it UEL
• there is an active second-hand market which can be used to measure the residual value

Question 7

HOW DO YOU AMORTISE AN ASSET WITH AN INDEFINITE USEFUL ECONOMIC LIFE?

Answer 7

You do not amortise this. Instead you test for impairment annually.

You also review the UEL every accounting period. If it becomes finite then it should be amortised.

Question 8

THE IAS 38 RECONCILIATION NOTE

Answer 8

Development | Patents | Trademarks | Total

COST
  b/f
  Additions
  Disposals
  c/f

AMORTISATION/ IMPAIRMENT
  b/f
  Charge
  Disposal
  c/f

CARRY VALUE
End of year
Start of year