intangible assets

Question 1

IAS 38 Intangible Assets: Definition

Answer 1

‘An intangible asset is an identifiable non-monetary asset without physical substance.’

Question 2

what is meant if an asset is Separable?

Answer 2

Capable of being sold (or licensed, rented etc) separately from the entity.

Examples: software; intellectual property; trademark.

Question 3

what does it mean if an asset Arises from contractual or legal rights?

Answer 3

Protected by legal agreement.

Examples: patents; authorship rights.

Question 4

when can an intangible asset be recognised?

Answer 4

must meet the definition of an intangible asset;

must meet the recognition criteria.

Question 5

what is the Recognition criteria?

Answer 5

must be probable that economic benefits will flow to the entity.

cost can be measured reliably.

Question 6

where can intangible assets be acquired from?

Answer 6

Purchased intangible
As a part of a business combination
Internally generated

Question 7

Purchased intangible

Answer 7

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.

Question 8

As a part of a business combination

Answer 8

appraised value (fair value) at the time of the acquisition - the price that would be received to sell an asset

Question 9

Internally generated

Answer 9

which have been developed by the entity itself.

Classified into:
Research phase, and
Developmental phase.

Question 10

Internally generated intangible examples..

Answer 10

Patent
Software
Brand
Website
Customer database
Goodwill (reputation etc)

Question 11

what are research costs and how do they get recognised

Answer 11

Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding (dont capitalise)

Recognised as expenses when incurred

Question 12

what is development costs and how are they recognised?

Answer 12

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

Question 13

Criteria for Capitalization is…

Answer 13

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

Question 14

what is amortisation?

Answer 14

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.

Question 15

should finite intangible assets eg software and licenses be amortised?

Answer 15

Amortised systematically over its useful life

Assume residual value = zero

Revise amortisation at the end of each financial year-end

Question 16

should indefinite intangible assets eg brands be amortised?

Answer 16

should not be amortised

Instead, should be subject to an annual impairment review.

Indefinite is NOT Infinite!

Question 17

Amortisation of an intangible asset should
begin and end when?

Answer 17

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.

Question 18

amotisable amount calculation

Answer 18

Cost of the asset, or other amount substituted for cost − Residual value (assumed to be 0)

Question 19

The residual value is assumed to be zero unless…

Answer 19

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.

Question 20

what does it mean for something to get derecognised?

Answer 20

removed from statment of financial position

Question 21

Gain /Loss formula

Answer 21

Gain /Loss = Disposal proceeds - Net Book Value

Question 22

when should an intangible asset be dereognised?

Answer 22

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

Question 23

what does IAS 38 Intangible Assets: Disclosure requirements say?

Answer 23

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.

Question 24

what is goodwill?

Answer 24

“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

Question 25

good will calculation

Answer 25

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

Question 26

Net Assets calculation

Answer 26

Total assets of smaller firm - Total liabilities of smaller firm