Chapter Five: Intangible Assets Flashcards
What is the definition of an intangible asset under IAS 38?
An identifiable, non-monetary asset without physical substance.
To be identified as an intangible asset either of the following conditions must be met?
Be capable of being seperated or divided from the entitiy and sold, transferred, licensed, rented or exchanged either individually or together with a related contract, asset or liability
Arise from contractual or other legal rights.
What are some key examples of intangible assets?
Patents, copyrights and customer lists.
IAS 38 requires an entity to recognise an intangible asset only if what conditions are met?
It is probable that the expected future economic benefits that are attributable to the asset will flow to the entity.
The cost of the asset can be measured reliably.
What is meant by future economic benefits?
Revenue from sale of products or services.
Cost savings.
Other benefits resulting from the use of the asset by the entity.
How should an intangible asset initially be measured?
At cost.
What is research?
Research involves uncovering new knowledge.
Why is research not recognised as an intangible asset?
It may not have any commercial application and therefore might not give rise to future benefits.
What is development?
Development activities involve applying the findings of research activities and using this knowledge to develop something with a commercial use.
This could be a new product, which can be sold for a profit, or new processes, which allow the company to operate more cheaply and efficiently.
In terms of intangible assets, what is cost comprised of?
All directly attributable costs necessary to create, produce and prepare the asset for use.
Examples of directly attributable costs in relation to intangible assets?
Costs of materials and services used or consumed in generating the intangible asset, such as materials used in the production of prototypes.
Costs of employee benefits arising from the generation of intangible asset.
Fees to register a legal right.
Examples of non directly attributable costs in relation to intangible assets?
Selling, administrative, and other general overhead expenses.
Identified inefficiencies and initial operating losses incurred before the asset achieves planned performance.
The cost of training staff to operate the asset.
What is the cost model?
The asset is carried at cost less any accumulated amortisation and any accumulated impairment losses.
What is the revaluation model?
The asset is carried at it’s revalued amount. This is it’s fair value at the date of revaluation less any subsequent accumulated amortisation and any subsequent impairment losses. The valuation must be reviewed regularly.
How should the amortisation method of intangible assets be chosen?
The method should reflect the pattern in which the assets’ benefits are expected to be consumed, if this can not be reliably measured then the straight-line method should be used.
