IAS 38 Intangible Assets

Question 1

Define what an intangible asset is

Answer 1

An identifiable non-monetary without physical substance
E.g. trademarks and databases

Question 2

Determine the value of an intangible asset at initial recognition

Answer 2

Initial measurement we measure cost

Question 3

Determine the value of an intangible asset at subsequent measurements (cost model)

Answer 3

We take cost less amortisation (depreciation for intangible assets)

Question 4

Determine the value of an intangible asset at subsequent measurements (revaluation model)

Answer 4

Revalue the asset periodically (annually or specific case when there’s a change in value) any movement in price goes to the revaluation reserve

Question 5

What is amortisation?

Answer 5

Cost less residual value / useful economic life. We start amortisation once the asset is ready to use

The residual value of an asset is zero unless a 3rd party is committed to purchasing the asset or there is an active market for valuation

Question 6

Describe when to recognise an intangible asset

Answer 6

To be recognised in the FS it must meet the definition of an intangible asset and must be probable that future economic benefit can be attributable to the asset and the cost of the asset must be able to be measured reliably

Question 7

Explain the complex issue of internally generate intangible assets (R&D)

Answer 7

Managers may boost short term profits be reducing expenses and recognise it all expenditure as assets.
However if all R&D is expensed shareholders may misinterpret it as wasting money.

Question 8

How is R&D recognised in the FS

Answer 8

In the research phase all expenditure is expensed to the income statement, in the development phase you product should be proven to generate future economic benefit and therefore all expenditure is capitalised in the SOFP.