IAS 38 - Intangible Assets

Question 1

Intangible assets criteria and measurement

Answer 1

An intangible asset is a identifiable non-monetary asset without physical substence. In order to be identifiable the asset must either:

• Be separable - capable of being separately bought or sold; or
• arise from legal or contractual rights.

Measurement
Initially measured at cost and amortised on a systemic basis over their useful economic life.
If the useful economic life is infinite, then an amortisation will not be applied but there must be an annual impairement review.

Subsequent measurement will be similar to tangible assets.
- Cost less cumulative amortisation.

Question 2

Research and Development costs

Answer 2

Research

• The original investigation which is undertaken in order to obtain new knowledge.
• This should be expensed to the SPL as it is incurred

Development

• The application of research findings to produce new or improved materials, products or processes.
• This expenditure should be capitalised and amortised if it meets specific criteria. Otherwise it should be expensed the the SPL.

Criteria for capitalisation of development costs (PIRATE)

• Demonstrate PROBABLE economic benefit
• Have the INTENTION to complete the project
• Have the RESOURCES to complete the development
• Have the ABILITY to use or sell the asset.
• TECHNICALLY feasible
• EXPENDITURE can be measured reliably.

Question 3

Amortisation of intangible assets

Answer 3

If the asset has a finite life then it should be systemically amortised with a nil residual value.

• Straight line basis
• Weighted average basis.
  
  • Expected revenue each year / total revenue over life = allocation % for amortisation.

If the asset has an infinite life then it should not be amortised but should be subject to an annual impairment review.