Intangible assets

Question 1

When can an intangible asset be recognised in accounts

Answer 1

When it is probable that the entity will receive future economic benefits from the asset, and

The cost of the asset can be measured

Question 2

Measurement

Answer 2

Intangible assets purchased on its own (license for music) should be recognised at cost (plus directly attributable costs).

Assets purchased as part of business contribution should be recorded at fair value.

Internally generated goodwill (reputation) is not recognised as it cannot be measured reliable

Question 3

Measurement after recognition

Answer 3

Cost model - cost less amortisation and impairment losses

Revaluation model - revalued amount less amortisation and impairment losses (only allowed if an active market)

Question 4

Amortisation

Answer 4

Depreciation of an intangible asset. Following points are relevant:

The residual value normally assumed at zero
Amortisation begins when the asset is available for use
Some intangibles are considered to have an indefinite useful life and as such not amortised, but will have an annual impairment

Question 5

Research and development costs

Answer 5

Research costs = to gain new understanding are not an intangible asset

Development costs = application of research, must be recognised if all following criteria is met:

PIRATE
Probable future economic benefit
Intention to complete and use/sell asset
Resources adequate and available to complete
Ability to use/sell
Technical feasibility of completing asset
Expenditure can be measured reliable