Intangible Assets Flashcards
What is the definition of an intangible asset?
According to IAS 38, It is an
- identifiable
* capable of being separated from the entity
* can be sold transferred, licensed, rented or exchanged OR
* arises from contractual or legal rights
- non-monetary
- not a fixed amount of money
- Asset
- must be controlled
/ power to obtain future economic benefits AND
/ restrict access to benefits from others
/normally a legal right but not always - as a result of past events
- without physical substance
- can require judgment if physical and non physical elements to asset
- from which future economic benefits are expected to flow
- can be inflow of revenue or reduction of an expense
What legislation deals with intangible assets?
IAS 38
What are the important sections to consider when dealing with intangible assets?
- definition
- recognition criteria
- where the asset arose from
- measurement
- deferred Tax
- disclosure
What are the recognition criteria of an intangible asset?
- probable that future economic benefits from the asset will flow to the entity
- cost can be reliably measured
What impact does it have if the asset arises from a SEPARATE acquisition?
- the price paid reflects the probability that future economic benefits will flow to the entity and so that recognition crit is always considered satisfied
- cost usually measured reliably from purchase consideration
What impact does it have if the asset arose from being part of a business combination?
- the cost = FV at acquisition date
- the FV also accounts for probability that future economic benefits will flow to the entity, so the RC is satisfied (that point at least)
- if asset is idenitifble, then sufficient information exists to reliably measure FV which means the other RC is also always satisfied
- the acquirer will recognize an intangible asset that meets the RC even if the acquiree hasn’t recognized it
- in process research and development meets the definition of an intangible asset if
- meets definition of asset
- identifiable
- something about subsequent expenditure
What is the impact if the asset arose from the government or a grant?
- it could have been acquired for free or for a nominal charge
- they can choose to recognize it at cost or its FV
What is the impact if the asset arose through the exchange of assets?
Accounted for at FV, unless the exchange lacks commercial substance
What is the impact if the intangible asset acquired is internally generated goodwill?
It should never be recognized
What is the impact if the asset arose from internal generation?
- the research phase(costs) cannot be recognized as an asset because we can’t demonstrate future economic benefits are probable
- the development stage costs can be recognized if All of the following is demonstrated
- technical feasibility to complete
- intention to complete
- ability to use or sell
- how it will generate future economic benefits
- avaliablility of adequate technical, financial and other needed resources
- ability to reliably measure the expenditure
-the reliable measurement of the cost
* includes
/ materials
/ employment costs
/ directly attributable
/ overheads allocated on reasonable basis
* something else on the notes
- costs previously expensed cannot be reinstated
How does one measure an intangible asset?
Initially
- IAS 38 requires all intangible assets to be recognized at cost initially
Subsequently
- check if it is being measured through the cost model or revaluation model, if revaluation model
* entire class must be re valued
* if reliable FV cannot be determined, use last FV or if none, use cost
- check what the deprecation needs to be
/ useful life - if finite useful life, as usual
> useful life cannot exceed the term of the contract of intangible asset - if indefinite useful life, there is no depreciation or amortization
/ residual value - assumed zero unless the following
> commitment to purchase by 3rd party at end of useful life
> active market and FV can be reliably measured with reference to the market
> active market and it is probable that the market will still exist at the end of its useful life
/ when was it available for use?
/ method - must reflect the pattern in which economic benefits are used otherwise straight line method
- must review it each balance sheet date
- impairments
/ useful life
*if indefinite useful life, check for impairments every year - check useful life every year if useful life still indefinite
- other costs
- what does the class example say?
- disposals
What does SIC 32 say about intangible assets?
I don’t know yet
