IND AS 38 - Intangible assets Flashcards
What is the treatment of Intangible assets contained in or on a physical substance?
What is the definition of Intangible asset as per the definition provided as a part of IND AS 38 - Intangible assets?
An asset is a resource
(a) controlled by an entity as a result of past events; and
(b) from which future economic benefits are expected to flow to the entity.
What is the definition of development as per the provisions of IND AS 38 - Intangible assets?
Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
What is the definition of entity specific value as per the IND AS 38?
Entity-specific value is the present value of the cash flows an entity expects to arise from the continuing use of an asset and from its disposal at the end of its useful life or expects to incur when settling a liability. AKA Recoverable amount
What is the definition of Intangible asset as per the provisions of IND AS 38?
An intangible asset is an identifiable non-monetary asset without physical substance.
What is the definition of Research as per the provisions of IND AS 38 - Intangible assets?
Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
All cost incurred in this phase has to be expensed to PL simply due to the logic that we do not know how much time will the research phase will go on.
What is the detailed meaning of Identifiability in the definition of Intangible assets?
An asset is identifiable if it either:
(a) is separable, ie is capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or
(b) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations.
What is the treatment of Internally generated goodwill as per the provisions of IND AS 38?
This standard prohibits the recognition of internally generated goodwill as an asset.
Internally generated goodwill is not recognised as an asset because it is not an identifiable resource (i.e. it is not separable nor does it arise from contractual or other legal rights) controlled by the entity that can be measured reliably at cost.
Even in case of purchased goodwill, we are only permitted to recognize an Intangible asset and we are not allowed to amortize the same, since it is an asset which has an indefinite useful life which has to be tested for impairment regularly.
In the definition of Intangible asset it says that Intangible assets are non monetary assets without physical substance? what is it’s relation to IND AS 21?
- It basically means assets whose realizable value may differ from the values appearing in the balance sheet - IND AS 21 and IN AS 16 - Exchange of non monetary assets etc.
What is the criteria for recognition of asset in case exchange of Non Monetary assets ? is the guidance similar to the one provided for IND AS 16 read in terms of the intangible asset?
When does an expenditure incurred on an intangible item should be recognised as an expense when it is incurred unless?
(a) it forms part of the cost of an intangible asset that meets the recognition criteria; or
(b) the item is acquired in a business combination and cannot be recognised as an intangible asset. In such case, it forms part of the amount recognised as goodwill at the acquisition date.
What are the nature or types of expenses that the standard prescribes are to be expensed off to PL A/c?
These are pretty important to be kept in mind while solving problems in this regard
What is the recognition criteria for goodwill and other Intangible assets acquired as a part of business combination as per the provisions of IND AS 103?
An acquirer recognises at the acquisition date, separately from goodwill, an intangible asset of the acquiree, irrespective of whether the asset had been recognised by the acquiree before the business combination.
This means that the acquirer recognises as an asset separately from goodwill an in-process research and development project of the acquiree if the project meets the definition of an intangible asset.
the definition of an intangible asset when it:
(a) meets the definition of an asset; and
(b) is identifiable, ie is separable or arises from contractual or other legal rights.
Whether Market share for the service provided be recognised as an intangible asset as per the provisions of IND AS 38?
No, Base your reasoning on the understanding obtained from previous Flash cards and also See solution book for Q1.
Can a customer list generate internally over a period of time be recognized as an Intangible asset as per the provisions of IND AS 38?
Cost cannot be reliably measured and hence customer list cannot be recognised in the balance sheet - See Q9 of solution book.
Whether human resources who are engaged in the development of software for a company which has a well drafted HR policy and the company reasonable does not expect it’s employees to leave in the near future be recognized as an intangible asset?
No, since we do not have control over the employees legally and we cannot enforce contractual obligation on them to make them stay. The answer will be yes if the employee is a player of a football club and is locked for a period of 5 years. Here in this case if the player has to withdraw, he has to incur serious legal ramifications, and hence the resource can be said to be controlled in this case. -See ans in Q.12 and 13 of solution book.
Whether a franchise agreement mentions that the franchisee would have to pay royalty as a percentage of sales made. can the rights on the franchisee be treated as an intangible asset as per IND AS 38?
Yes, since it meets the identification criteria and contractual rights criteria - See Q -16.
Is the brand name and the Expenditure incurred to increase the FEB be recognised as IA as per IND AS 38?
No, It might increase FEB, but does not result in creation of an intangible asset, hence the expense should be written off accordingly.
What is the course of action when if an entity cannot istinguish the research phase from the development phase of an internal project to create an intangible asset?
The entity treats the expenditure on that project as if it were incurred in the research phase only - That is, it will be fully expensed to PL.
What are some items which are prohibited from being recognised as internally generated Intangible assets?
This standard prohibits the recognition of internally generated goodwill as an asset. Some other internally generated items that are prohibited to be recognised as intangible assets are brands, mastheads, publishing titles, customer lists and items similar in substance shall not be recognised as intangible assets.
What is the research phase in relation to internally generated IA? and what is the treatment to be given for those expenses?
Research is original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
No intangible asset arising from research (or from the research phase of an internal project) should be recognised. Expenditure on research (or on the research phase of an internal project) should be recognised as an expense when it is incurred.
In the research phase of an internal project, an entity cannot demonstrate that an intangible asset exists that will generate probable future economic benefits. Therefore, this expenditure is recognised as an expense when it is incurred.
What is the Development phase in relation to internally generated IA? and what is the treatment to be given for those expenses?
Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
In the development phase of an internal project, what are the conditions on the basis of which that we should demonstrate that the same can be capitalized in the books of accounts?
IA under development should not be amortized till the time they are ready for use. However they should be tested for impairment annually - That is we should compare the carrying value with the recoverable value at each BS date till the time the development phase continues. IA should be recorded at lower of the above two values accordingly.
What is the cost - Inclusions and exclusions in relation to cost of an internally generated IA?
The cost of an internally generated intangible asset for the purpose of initial measurement at recognition is the sum of expenditure incurred from the date when the intangible asset first meets the recognition criteria including the additional criteria specified above.
