IAS 38- Intangible Assets

Question 1

Q.37-Discuss briefly why the right to receive access to Sitka Co’s software is unlikely to be accounted for as an intangible asset or a lease in Cent Co’s financial statements in
accordance with FRS 102

Answer 1

• Recognition Criteria for Intangible Asset (IAS 38):
  
  • Identifiability, control, future economic benefits
• Cent Co’s Arrangement with Sitka Co:
  
  • Likely satisfies identifiability and future economic benefits criteria
  • Control criterion questionable
• Control Criterion (IAS 38):
  
  • Entity controls asset if it can obtain future economic benefits and restrict others’ access
• Cent Co’s Lack of Control:
  
  • Doesn’t own rights to software at any time
• Conclusion on Intangible Asset Recognition:
  
  • Cent Co shouldn’t recognize intangible asset due to lack of control
• Contract Nature According to IFRS 16 (Leases):
  
  • Not a lease contract
  • Cent Co lacks decision-making rights to direct asset use
• Cent Co’s Rights in Contract:
  
  • Only right to access software
• Contract Classification:
  
  • Service contract
• Expense Treatment:
  
  • Expensed over four-year period