intangible assets Flashcards
IAS 38 Intangible Assets: Definition
‘An intangible asset is an identifiable non-monetary asset without physical substance.’
what is meant if an asset is Separable?
Capable of being sold (or licensed, rented etc) separately from the entity.
Examples: software; intellectual property; trademark.
what does it mean if an asset Arises from contractual or legal rights?
Protected by legal agreement.
Examples: patents; authorship rights.
when can an intangible asset be recognised?
must meet the definition of an intangible asset;
must meet the recognition criteria.
what is the Recognition criteria?
must be probable that economic benefits will flow to the entity.
cost can be measured reliably.
where can intangible assets be acquired from?
Purchased intangible
As a part of a business combination
Internally generated
Purchased intangible
the purchase price, including import duties and non-refundable purchase taxes, trade discounts, and
any directly attributable costs of preparing the asset for its intended use, including:
- employee costs,
- professional fees and
- testing costs, etc.
As a part of a business combination
appraised value (fair value) at the time of the acquisition - the price that would be received to sell an asset
Internally generated
which have been developed by the entity itself.
Classified into:
Research phase, and
Developmental phase.
Internally generated intangible examples..
Patent
Software
Brand
Website
Customer database
Goodwill (reputation etc)
what are research costs and how do they get recognised
Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding (dont capitalise)
Recognised as expenses when incurred
what is development costs and how are they recognised?
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.
Capitalised (recognized as an intangible asset) if specific criteria are met
Criteria for Capitalization is…
Intention to Complete and Use or sell the asset.
Technical Feasibility for completion.
Availability of Resources to complete the development
Ability to Use or Sell the asset.
Probable Future Economic Benefits
Reliable Measurement of Expenditure
what is amortisation?
It is used to record the purchase of intangible assets, such as patents, trademarks, copyrights, and franchise agreements. The cost of the asset is spread out over its useful life, instead of being treated as a single upfront expense.
should finite intangible assets eg software and licenses be amortised?
Amortised systematically over its useful life
Assume residual value = zero
Revise amortisation at the end of each financial year-end
should indefinite intangible assets eg brands be amortised?
should not be amortised
Instead, should be subject to an annual impairment review.
Indefinite is NOT Infinite!
Amortisation of an intangible asset should
begin and end when?
begin when the asset is available for use and
end when the asset is derecognised or classified as held for sale.
The amortisation method used should reflect the pattern in which the asset’s economic benefits are consumed by the enterprise. If that pattern cannot be determined reliably, the straight-line method should be used.
amotisable amount calculation
Cost of the asset, or other amount substituted for cost − Residual value (assumed to be 0)
The residual value is assumed to be zero unless…
a third party is committed to buying the asset at the end of its useful life, or
there is an active market for the asset and its residual value can be determined by reference to that market.
what does it mean for something to get derecognised?
removed from statment of financial position
Gain /Loss formula
Gain /Loss = Disposal proceeds - Net Book Value
when should an intangible asset be dereognised?
An intangible asset should be derecognised (i.e. removed from the Statement of Financial Position) when:
it is disposed of, or
no future economic benefits are expected from its use or from its disposal.
Any gain or loss arising on the derecognition of an intangible asset should be recognised in SoPL
what does IAS 38 Intangible Assets: Disclosure requirements say?
The financial statements should disclose the following for capitalised development costs and other intangible assets:
a reconciliation of the Net Book Value at the beginning and end of the period, showing:
- new expenditure incurred,
- amortisation and
- amounts are written off because a project no longer qualifies for capitalisation.
the amortisation method used and the expected period of amortisation
amortisation charges during the period.
the total amount of research and development expenditure recognised as an expense during the period.
what is goodwill?
“Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.”
its measured at appraised value at the time of the acquisition and its non seperable
good will calculation
Consideration paid (purchase price) – Net Assets at fair value
e.g. If a parent company acquires a smaller firm at consideration paid of £100,000 and total assets acquired is £150,000 while total liabilities are £70,000.
Net assets = £150,000 - £70,000
=£80,000
Goodwill =£100,000 - £80,000
=£20,000
Net Assets calculation
Total assets of smaller firm - Total liabilities of smaller firm
