IAS 38 - Intangible Assets

Question 1

When can you recognise an intangible asset?

Answer 1

• Probable that expected future economic benefit will flow to the entity
• Cost of the asset can be measured reliably

If not, expense to P/L

Question 2

How to recognise acquisition of an intangible:

Answer 2

The cost is automatically measured reliably:

Purchase price, import duties and irrecoverable taxes less trade discounts
Any directly attributable cost of preparing the asset for its intended use

As part of business combination:

Cost is fair value at acquisition date, assuming reliable measurement. Otherwise, it becomes part of overall goodwill
Eg/ A worth £100m
B buys A for £150m —-> £50m will go to goodwill

Question 3

Can you recognise internally generated goodwill?

Answer 3

No

This includes happy workforce, good location or good management

Question 4

When can you capitalise R&D costs?

Answer 4

Only when it satisfies all of the following:

• Probable future economic benefit
• Intention to complete the asset
• Resources available
• Ability to use or sell the asset
• Technical Feasibility
• Expenditure can be measured reliably

ALL RESEARCH COSTS ARE WRITTEN OFF TO P/L

Question 5

Amortisation policy:

Answer 5

Residual value is normally assumed to be zero, unless commitment to buy at the end of its useful life.

Amortisation begins when asset is available for use. An indefinite useful life is possible.

Question 6

Accounting for revaluation of intangibles:

Answer 6

Intangibles may be revalued to fair value where an active market exists - IAS 38 states that this is uncommon.