Intangible assets Flashcards
What is an intangible asset?
- is an identifiable non-monetary asset without physical substance
What item are included in intangible assets?
- licences and quotas
What item are included in intangible assets?
- licences and quotas
- intellectual property, e.g. patents and copyrights
- brand names
- trademarks
IAS 38 Intangible Assets conditions to be identifiable
- it is separable
- it arises from legal/contractual rights
normal conditions: - controlled by the entity as a result of past events
- a resource from which future economic benefits are expected to flow
Recognition of intangible asset in financial statements
- the definition of an intangible asset
- meet the recognition criteria: - it is probable that future economic benefits attributable to the asset will flow to the entity
- the cost of the asset can be measured reliably
Measurement of intangible asset after initial recognition
- cost model
- the revaluation model
The cost model
- more commonly used in practice
- the intangible asset should be carried at cost less amortisation and any impairment losses
Intangible asset with an indefinite useful life
- should not be amortised
- should be tested for impairment annually, more often if there is an actual indication of possible impairment
The revaluation model
- the intangible asset may be revalued to a carrying amount of fair value less subsequent amortisation and impairment losses
- fair value should be determined by reference to an active market
What is an active market?
- market in which transactions for the asset take place with sufficient frequence and volume to provide pricing information on an ongoing basis
Indicators of an active market
- the items traded within the market are homogeneous ( identical)
- prices are available to the public
What can’t be recognised in internally-generated
- goodwill ( inherent goodwill)
- brands
- mastheads
- publishing titles
- customer lists
What is a goodwill?
- is the difference between the value of a business as a whole and the aggregate of the fair values of its separable net assets
What are separable net assets?
- are those assets and liabilities which can be identified and sold off separately without necessarily disposing of the business as a whole
- they include identifiable intangible assets such as patents, licences and trademarks
What is the fair value?
- the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date
Goodwill may exist because of:
- reputation for quality or service
- technical expertise
- possession of favourable contracts
- good management and staff
Purchased goodwill
- arises when one business acquires another as a going concern
- includes goodwill arising on the consolidation of a subsidiary
- will be recognised in the financial statements as its value at a particular point in time is certain
Non-purchased goodwill
- is also known as inherent goodwill
- has no identifiable value
- is not recognised in the financial statements
Definition of goodwill by IFRS3
- an asset representing the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognised
What is research?
- is original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding
What is 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
Research expenditure - accounting treatment
- write off as incurred to the statement of profit or loses
Development expenditure - accounting treatment
- recognise as an intangible asset only under conditions:
- Probable flow of economic benefit from the asset, whether through sale or internal cost savings
- Intention to complete the intangible asset and use or sell it
- Reliable measure of development cost
- Adequate resources to complete the project
- Technical feasibility of completing the intangible asset so that it will be available for use or sale
- Expected to be profitable, i.e. the costs of the project will be exceeded by the benefits generated
Development criteria, TRUMP CV
Technically feasible
Resources to complete
Sell/use
Measure cost reliably (expense)
Probable future economic benefits (overall)
Commercially viable
