IAS 38: Intangible Assets

Question 1

Definition Intangible Asset

and meaning of identifiable

Answer 1

An IDENTIFIABLE, non-monetary asset, without physical substance.

An asset is,

• a resource CONTROLLED by the entity as a result of past events
• from which FUTURE ECONOMIC BENEFITS (eg cash inflows) are expected to flow to the entity

So the 3 key elements of an intangible asset are:
1. IDENTIFIABILITY
The asset is either
* Separable from the entity and capable of being sold or transferred, or it arises from
* Contractual or other legal rights.

2. CONTROL
   The entity has the power to obtain FEBs from the asset
3. FUTURE ECONOMIC BENEFITS
   Include * revenue from the sale of products or services
   *cost savings or other benefits

Question 2

Recognition
IAs come from 2 main sources

Purchased or Internally generated.

In both cases the recognition criteria are?

Answer 2

Recognise only IF:

1. Meets the DEFINITION of an Intangible Asset
2. It is PROBABLE that the expected future economic benefits attributable to the asset will flow to the entity.
3. The cost of the asset can be RELIABLY MEASURED

Question 3

Measurement of Intangible assets:

INITIAL

Answer 3

Initial measurement at COST.
The cost of a SEPARATELY ACQUIRED intangible asset comprises:

1. Its purchase price, including duties & non-reclaimable purchase taxes, after deducting Trade discounts & rebates.
2. Any DIRECTLY ATTRIBUTABLE cost of PREPARING the asset for its INTENDED use

Question 4

CONDITIONS for Recognition of an Intangible Asset arising from development..

Answer 4

It can demonstrate:

1. How the asset will generate PROBABLE future economic benefits. (eg. existence of market for asset or its output; or it’s usefulness if for internal use)
2. Its INTENTION to complete the IA and use or sell it.
3. Availability of Adequate Technical, Financial and Other RESOURCES to complete the Dev & to use or sell the IA
4. It’s ABILITY to use or sell the IA
5. The TECHNICAL FEASIBILITY of completing the IA for use or sale
6. Its ability to Reliably Measure the EXPENDITURE attributable to the IA during its development

Question 5

MEASUREMENT after Recognition

Answer 5

An entity shall choose either the cost model or revaluation model as its accounting policy.

Cost model:
After initial recognition an IA shall be carried at it’s cost less any Accumulated Amortisation and any Accumulated Impairment losses

Revaluation model:
After initial recognition an IA shall be carried at a revalued amount, being it’s FAIR VALUE at the datt
e of the Reval less any SUBSEQUENTLY accumulated Amortisation & Impairment losses

Question 6

What to remember about Revaluation under this standard?

Answer 6

1. Fair value shall be measured by reference to an ACTIVE MARKET.
2. Revaluations will be made with such REGULARITY that at the end of the reporting period the CA of the IA does not differ Materially from its Fair Value

Question 7

Useful life

Answer 7

An entity shall assess whether the useful life of an IA is finite or Indefinite:

Indefinite
Based on an analysis of all relevant factors there is no forseeable limit to the period over which the asset is expected to generate net cash inflows.

The Useful life of an IA arising from contractual or other legal rights shall not exceed the contractual or legal rights but may be shorter.

Question 8

Other notes

Answer 8

Amortisation begins when asset is available for use.

Use the amortisation method reflecting the pattern in which the Assets Furure economic benefits are expected to be consumed..Straight line method is the default if this can’t be reliably determined.

Residual value:
Assumed to be zero unless
* There is a committment by a third party to purchase.
* There is an active market and Resid V can be determined by ref to that market and it is probable such a market will exist at the end of the assets UL

Question 9

IAs with indefinite useful lives

Answer 9

Shall not be Amortised.

In accordance with IAS 36 Impairment must test IAs with Indef USs annually AND whenever there is an indication of Impairment

Also review IA with Indef UL each period to determine if it is still indefinite

Question 10

what assets does IAS Int assets not apply to?

Answer 10

Current assets (like inventory)

Question 11

Describe accounting for an IA

Answer 11

• IAS 38 sets out the accounting treatment for expenditure for Developing; Acquiring, Maintaining or Enhancing intangible assets (Dame).
• The costs described in the question can be classed as Development costs.
• The costs are EITHER recognised on the SPLOCI as an expense as they occur OR may be CAPITALISED (ie. recognised on the SFP) as an INTANGIBLE ASSET.

Question 12

Research accounting

Answer 12

Revenue expenditure
is to be recognised as an expense in the SPLOCI of the year in which it is incurred.

Capital Expenditure on NCAs (eg new research lab)
Is to be recorded as NCAs and depreciated over UL

Question 13

Development accounting

Answer 13

Development costs are EITHER

Recognised as an expense on the SPLOCI when they are incurred

OR if the entity can demonstrate PIRATE
Capitalised (ie recognised on the SFP) and Carried as an INTANGIBLE asset on the SFP until the project commences commercial production. The IA will them be Amortised over its useful life against future profits.

The effect of this is that the development costs will not affect profits until production commences and sales are made.

Question 14

Examples of IAs

Answer 14

• Computer software
• Patents
• Customer lists
• Licenses
• Copyrights
• Marketing rights