INITIAL RECOGNITION AND MEASUREMENT Flashcards
When to recognise an intangible asset?
An item that meets the definition of an intangible asset can only be recognised if:
‐ It is probable that the expected economic benefits attributable to the asset will flow to the entity, and
‐ The cost can be reliably measured
How is initially measured an intangible asset?
Initial measurement differs depending on if the intangible asset is:
- Separately acquired
- Generated initernally
It is initially recognised at COST (cash or cash equivalent, or fair value of consideration given at the time of acquisition)
What is included in the cost of separately acquired assets?
Purchase price at net of trade discounts and rebates;
Import duties;
Non-refundable taxes;
Directly attributable cost of preparing the asset for use.
When to cease recognition of costs of a separately acquired asset?
When the asset is in the condition necessary for it to be capable of operating in the manner intended by management.
What distinguish an Internally generated Goodwill from an internally generated intangible asset? Is it recognised as an intangible asset?
The Internally generated Goodwill is not identifiable (is not separable, does not arive from contractual or legal rights).
The Internally generated Goodwill is prohibited from recognition as an intangible asset.
How are classified the costs associated with internal generation of intangible asset?
- Research phase: original and planned investigation undertaken to gain new scientific or technical knowledge and understanding (earlier stages of a project)
- Development phase: 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.
How are classified the costs associated with internal generation of intangible asset when entity cannot determine classification as either research phase or development phase?
In this case, all expenditure treated as if it were part of research phase.
What is the accounting treatment for the research costs?
All research costs are expensed (when incurred)
What is the accounting treatment for the development costs?
Development costs are recognise as part of intangible asset if all following criteria are met:
a) Technical feasibility of completing the intangible asset for use or sale
b) Intention to complete intangible asset
c) Ability to use or sell the intangible asset
d) How the intangible asset will generate probable future economic benefits
e) Availability of adequate technical, financial and other resources to complete the development
f) Ability to reliably measure expenditure on the intangible asset
N.b The entity is prohibited from retrospectively capitalising an intangible asset once it is proved to be feasible
Are the internally generated intangible assets allowed from being recognised as an intangible asset?
No, cause internally generated intangible assets costs cannot be distinguished from costs of developing business, do not recognise as intangible assets.
What is the cost of internally generated asset? When it start and when it cease?
Cost of internally generated asset is the sum of expenditure incurred by entity from the date the intangible asset first meets the recognition criteria (i.e. when development phase commences).
Capitalise all directly attributable costs that are necessary to create, produce and prepare the asset to be capable of being operated in the manner intended by management.
Income from incidental operation may be taken off the asset (ex. selling samples produced during testing).
Judgement required to determine when asset moves from development phase to start up (and all capitalisation must cease).
Which costs are not costs of an internally generated intangible asset?
- Selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to preparing the asset for use
- Identified inefficiencies and initial operating losses incurred before the asset achieves planned performance
- Expenditure on training staff to operate the asset
