Intangible assets (IFRS)

Question 1

Internally generated intangible assets (IFRS)

Answer 1

• Research is defined as original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding
• Development is defined as 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
• Research costs are always expensed
• Development costs must be capitalized if all of the following exist:
  o Technically feasible
  o Intention to complete it
  o Ability to use or sell it
  o Probable future economic benefits will be generated
  o Availability of adequate technical, financial and other resources
  o Ability to reliably measure the expenditures attributed
• Costs meeting the tangible asset criteria should not be capitalized as intangible

Reference: IAS 38.4, .8, .54, .57

Question 2

Intangible assets – Definition and recognition (IFRS)

Answer 2

• To meet the definition of an intangible asset the item must be: identifiable, the entity must have control over the future benefit and the item must meet the recognition criteria
• The asset is identifiable if it either:
  o It can be separated from the entity
  o Arises from contractual, legal right that allow it to be transferrable or separable
• The entity controls the asset if it has the power to obtain future economic benefits
• Recognition criteria:
  o Probable that the expected future economic benefits will flow to the entity
  o Cost of the asset can be measured reliably

Reference: IAS 38.12, .13, .17 .21

Question 3

Intangible assets – Amortization (IFRS)

Answer 3

• Intangibles are to be amortized over their estimated useful lives unless they are considered to have an indefinite life
• Assets with indefinite lives are not to be amortized until the life is no longer considered indefinite, but they must be tested for impairment annually
• Assets with definite lives can be reported following either the cost model or the revaluation model
• Amortization method and useful life should be reviewed annually
• Consider expected use, life of related assets, contractual provisions, product life cycles and other economic factors

Reference: IAS 38.72, .88, .97, .104, .107, .109