Intangible Assets Flashcards
What is IAS38?
Intangible assets
Whats the definition of an intangible asset?
An identifiable non-monetary asset without physical substance
Do intangible assets have their own accounting standards?
no
What is a monetary asset?
financial assets that are easily convertible to cash
e.g. cash, savings accounts, debtors
An intangible asset is identifiable if it is…
- separable, i.e. capable of being separated from the entity and sold or transferred. licensed, rented and exchanged
OR - arises from contractual or other legal rights
When is an intangible asset recognised?
If it is;
- identifiable
- controlled
- potential economic benefits (R&D)
- its cost must be measurable
HAS TO MEET ALL 4 REQUIREMENTS!!!!
Under the cost model, if the book value is lower than the fair value, can you increase the book value?
No. But if it is opposite then you can decrease the BV
Under the revaluation model, if the book value is lower than the fair value, can you increase the book value?
Yes, but you cant recognise it as income because of prudence so it goes into the revaluation reserve
Whats an example of something that has no economical benefit?
SOME COVID-19 vaccines
All companies who developed vaccines that didn’t get approved
Development was an expense
If a cost isnt recognised in the balance sheet, where does it go?
It goes as an expense in the income statement
What are some examples of things that are NOT intangible assets (out of things you’d expect)?
Internally generated goodwill
Start-up costs
Training costs
Advertising costs
Market research
Research & Development
Relocation, reorganisation costs
Anything internally generated
Are customers intangible?
No, because you cant control them
Is a team of skilled staff intangible?
Unless it is protected by legal right to use them and obtain future economic benefits, no. Because you cant really control the expected economic benefits
Is goodwill an intangible asset?
As long as it’s not internally generated, it is one of the main intangible assets
Why is internally generated goodwill not recognised as an intangible asset?
Because there’s no evidence and it cant be measured reliably
If internally generated goodwill isn’t tested for impairment, what happens to it?
It’s amortised
When should amortisation start?
When the asset is available for use
What should the amortisation method reflect?
The pattern in which the asset’s future economic benefits are consumed
What is amortisation?
When you spread out the cost of something over time to match how long it will help the business.
If the pattern in which the asset’s future economic benefits are consumed can’t be predicted reliably, what should you do instead if amoritise?
Use the straight-line method
Where should the amortisation charge for each period be recognised?
in profit or loss
Should an intangible asset with an indefinite useful life be amortised?
No, it should be tested for impairment annually
How do you calculate amortisation?
Cost/useful life
What should expenditure on research recognised as?
An expense when its incurred
Why is development an asset?
Because future benefits are expected
When will an intangible asset arising from development be recognised?
When;
- you are able to finish developing the asset so it can be sold or available for use
- intention to complete the intangible asset and use or sell it
- ability to use or sell using the intangible asset
- how it will generate probably future economic benefits
- availability of adequate technical, financial, and other resources to complete the development to use or sell the intangible asset
- the ability to measure the expenditure attributable reliably during its development
IF ALL THIS CRITERIA ISNT MET, IT IS AN EXPENSE
What are some examples of development activities?
- design, construction and testing of pre-production or pre-use prototypes and models
- design of tools, jigs, moulds and dyes involving new technology
- design, construction and testing of a chosen alternative for new or improved materials, devices, products, processes, systems or services
If an intangible asset in a class of revalued intangible assets cant be revalued due there being no active market for it, how should it be carried?
cost
less acc amortisation
less impairment loss
Regarding the revaluation model, what should the fair value be able to be measured reliably in reference to?
an active market in that type of asset
Under the revaluation model, what should be done to prevent selective revaluations?
the entire class of intangible assets of the same type must be revalued at the same time
Revaluations should be done so regularly that…
the carrying amount doesn’t differ from the fair value at the end of the reporting period
If an asset’s carrying amount is increased to match the fair value, where should the revaluation be credited to?
Equity, under the heading of revaluation surplus
If the revaluation is a reversal of a revaluation decrease that was previously charged against income, where would it be recognised?
as income
If the carrying amount of an intangible asset is decreased to match its fair value, what should it be charged as?
Expense, UNLESS it has already been increased.
If an intangible asset’s carrying amount was once increased to match its fair value, but now it needs to be decreased, what would you do?
Charge the revaluation decrease against any previous revaluation surplus
