Intangible Assets

Question 1

What is an intangible asset?

Answer 1

it’s a non-monetary, non-physical substance that is identifiable

Question 2

Definition criteria of intangible assets

Answer 2

identifiability, control, future economic benefit

Question 3

Recognition criteria of intangible assets

Answer 3

Probability of making econ benefits > 50%
Reliable measurement

Question 4

How to recognize intangible assets?

Answer 4

If they pass all the recognition criteria: record as an asset on the BS
If they don’t: record as an expense on the P&L

Question 5

Internally generated intangible assets

Answer 5

Research is recognized as an expense, not an asset
Development is recognized as an asset when:
- The project is technically feasible to complete (resources)
- there is a desire to complete, use, sell the resulting product
- there is the ability to use or sell it
- Future economic benefits can be made
- adequate technology, financing, and other resources needed to complete the project are available
- there is the aility to reliably measure costs associated with dev

Question 6

What is NOT recognized as intangible assets

Answer 6

• internally generated brands, titles, customer lists
• internally generated goodwill

Question 7

Initial measurement?

Answer 7

at cost (either cost of purchase or conversion)

Question 8

How to conduct subsequent measurements?

Answer 8

Following the cost model, method changes depending on whether the asset has an indefinite useful life or not

Question 9

How to value an item with an indefinite useful life?

Answer 9

• no amortization
• annual impairment test
• annual review if economic life can be determined

Question 10

How to value an asset with a definite useful life?

Answer 10

Amortization is based on estimated useful life

• according to cost consumption:
  straight line
  diminishing balance
  units of production
• if process of utility can’t be appointed:
  straight line

Question 11

What is Goodwill? (IFRS 3.A)

Answer 11

the future economic benefits from other assets acquired during a business combination not individually identified and separately recognized

It’s the premium paid by the buyer that represents the acquisition of:
a going concern
a workforce
access to new markets
anticipated growths
future synergies

Question 12

Goodwill methods of accounting

Answer 12

Accountancy policy choice
- at fair value : full goodwill
- NCI’s proportionate share of net assets of acquiree: partial goodwill

=> recognize all hidden reserves and liabilities (in sum)

Question 13

Where to record goodwill?

Answer 13

On assets

Question 14

Where to record badwill?

Answer 14

directly in P&L

Question 15

Full goodwill method

Answer 15

Fair value of consideration transferred
+ Fair value of NCI
- net amount of identifiable assets and liabilities (+ hidden reserves)

Question 16

Partial Goodwill method

Answer 16

Fair Value of consideration transferred
+ NCI’s proportionate share of net assets of acquiree
- net assets and liabilities
= purchased goodwill