Chapter 9 - Intangible Assets Flashcards
What is an intangible asset?
‘An intangible asset is an identifiable non-monetary asset without physical substance’
What are some examples of intangible assets?
- Patents and copyrights
- Licences
- Trademarks
- Brand names
- Franchises
Internally generated goodwill does NOT count
What does identifiable mean in relation to an intangible asset?
- Capable of separate disposal
- Arising from contractual or other legal rights
What is the definition of ‘an asset as a present economic resource’?
It is:
- controlled by the entity as a result of past events,
- with a right that has the potential to produce economic benefits
What does ‘controlled by an entity’ mean?
This means the entity has the power to obtain future economic benefits for itself and restrict the access of other parties to those benefits
This requirement means that people’s knowledge and skills cannot be considered an intangible asset as staff can leave their employment
What does ‘future economic benefits’ mean?
This means future revenue or future cost savings
Expected rather than potential
When should an asset be recognised?
- it is probable that future economic benefits will flow to the entity, and
- the cost of the asset can be reliably measured
This is stricter than the asset definition of the Conceptual Framework
How do you treat an intangible asset under a separate acquisition?
- If a company purchases an intangible asset, the purchase price is an indication that future economic benefits are probable
- The cost can be measured as price paid (include all directly attributable costs)
- Therefore an intangible asset should be recognised
(Otherwise known as a separate acquisition)
How do you treat an internally generated intangible asset?
Look at three areas:
- research expenditure
- development costs
- other internally generated intangible assets
Internally generated intangible assets (such as brands, publishing titles, customer lists) should not be recognised as assets
How do you account for research costs?
Research costs are written off to the statement of profit or loss as it is too early to determine whether future economic benefits are probable.
How do you account for development costs?
Development costs must be capitalised where the project meets all of the following criteria:
PIRATE
P - Probable flow of economic benefit I - Intention to complete the project R - Reliable measurement A - Adequate resources available T - Technically feasible E - Expected to be profitable (future benefit will exceed expense) (can include decreased costs and reduced cash outflows)
If any of these conditions are not met, the expenditure must be written off as incurred
All development costs on the project must be capitalised
How do you treat other internally generated intangible assets (like internally generated brands)?
These may not be capitalised because costs cannot be identified separately from the cost of developing the business as a whole.
Write off expenditure to SPL as incurred
How do you account for intangible assets acquired as part of a business combination?
- Intangible assets recognised on the acquired company’s statement of financial position
- Intangible assets not recognised by the acquired company
These will be recognised in consolidated financial statements initially at fair value
How do you initially measure an intangible asset?
Where an intangible asset meets the recognition criteria, it should be measured initially at cost plus directly attributable costs e.g. legal fees
How do you subsequently measure an intangible asset after the initial measurement at cost?
- Cost less accumulated amortisation and impairment losses
- Revalued amount less accumulated amortisation and impairment losses
