Chapter 9 - intangible assets Flashcards
What is an intangible asset?
An identifiable non-monetary asset without physical substance
Identifying an intangible asset:
- It is identifiable - was bought and can be sold
- It is controlled by the entity
- Economic benefits are expected to flow
- Cost can be measured reliably
Types of intangible asset - separate acquisition
- If a company purchases an intangible asset, the purchase price is an indication that future economic benefits are probable
- Measured at cost
- Include all directly attributable costs
- Intangible asset should be recognised
Internally generated intangible assets:
Research costs
- Research costs do not meet recognition criteria as research is too distant from commercial production for an inflow of economic benefits to be probable
- Research costs should be written off to statement of profit or loss as incurred
Internally generated intangible assets:
Development costs
- Probable flow of economic benefit from the asset, whether through sale or internal costs savings
- Intention is to complete and use or sell asset
- Reliable measure of development costs
- Adequate resource is available to complete the asset
- Technical feasibility of completing the intangible asset so that it will be available for use of sale
- Expected to be profitable
What is a digital asset?
any item stored digitally that can be uniquely identified and used by organisations to gain value
Active market
a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis
- identical items
- buyer and sellers available
Amortisation - finite
An intangible asset has a finite useful life when there is a clear limit to the period over which the asset is expected to generate net cash inflows for the entity.
Amortisation should apply over the useful life of the asset (starting when it is available for use or generating benefit) and it should reflect the pattern of use of the asset.
Often the straight-line basis is appropriate, but you could use a method based on the units of production.
Amortisation indefinite
An intangible asset has an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the entity.
In this case the asset should not (indeed cannot) be amortised. Instead it should be tested for impairment annually, with any impairment reducing the asset value and being charged to the statement of profit or loss.
The useful life should also be reviewed annually to confirm that it is still indefinite.
Disclosures:
- if the asset has a finite or indefinite useful life
- for assets with indefinite lives, their carrying amount and why they have indefinite life
- individual assets if they are material
- amount of research and development expensed during the period
UK GAAP differences - Development costs
If the criteria are met, IAS 38 requires all eligible development costs to be capitalised.
Under FRS 102, an entity gets the choice of whether or not to capitalise development costs.
UK GAAP differences - useful lives
Under IFRS Standards intangible assets can have an indefinite life.
FRS 102 treats all intangible assets as having a finite useful life with a rebuttable presumption that this should not exceed ten years.
Intangible assets can only be revalued to their fair value if:
- There is an active market
- Items traded are homogeneous
- Willing buyers and sellers can be found at any time
- Prices of the item are available to the public.
