L4 | Intangible Assets Flashcards
What IAS is titled Intangible Assets?
IAS 38
What IFRS is titled Business Combinations (purchased goodwill)?
IFRS 3
What is an intangible asset?
A non-monetary asset without physical substance
Must also satisfy IASB definition of an asset:
- past event
- expectation of future economic benefits
- reliable measurement
Give some examples of intangible assets/resources that could be capitalised
- computer software
- patents
- copyrights
- motion picture films
- licenses
- import quotas
What is the recognition criteria for intangible assets?
Identifiable
- separable
- arises from contractual or other legal rights
Control
- power to obtain future economic benefits
Future economic benefits
- assessed using reasonable assumptions
If any condition not met, the expenditure must be written off to the income statement
How are intangible assets measured initially?
at cost
All directly attributable expenditure included:
- purchase price (incl. purchase duties)
- employee costs
- professional fees and testing costs
How are intangible assets subsequently measured?
Cost model
- cost less accumulated amortisation and impairment losses
Revaluation Model
- similar to IAS 16
- must apply to whole class of assets
How is fair value of an asset determined?
by reference to an active market (unlikely for intangible assets - many of them are unique)
When should you amortise an asset?
When it has a finite useful life
What should amortisation reflect?
Amortisation (depreciation) method should reflect the pattern of future economic benefits expected to be consumed
If can’t be determined reliably, amortise by straight line method
Where is the amortisation charge recognised?
Statement of Profit or Loss and Other Comprehensive Income, unless another IFRS requires that it be included in the cost of another asset.
How often should the amortisation period be reviewed?
at least annually
What is the link between impairment and intangible assets with finite useful lives?
the asset should be assessed for impairment in accordance with IAS 36 (impairment of assets)
Should intangible assets with indefinite useful lives be amortised?
no
How often should the useful life of an intangible asset with an indefinite useful life be reviewed?
Each reporting period to determine whether events and circumstances continue to support an indefinite useful life
Does internal goodwill fall under internally generated intangible assets?
no, it has it’s own accounting standard (IFRS3)
Where and what research costs should be charged?
All research costs to expense
When must development be capitalised?
if (and only if) following apply:
- either use it or sell it and
- enterprise intends and is able to complete the intangible asset and
- reliable measurement of expenditure
- technical and commercial feasibility of the asset for sale or use
- future economic benefits
- sufficient resources to complete project
When should sum of expenditure of development incurred be first capitalised?
from date intangible assets first meets all recognition criteria
What can be capitalised? (applies to all internally generated intangibles)
Directly attributable rule applies
May capitalise
* Costs of materials
* Labour costs
* Fees to register legal rights
But not:
* Selling admin/general o/h/staff training
What is (purchased) goodwill?
- the difference between purchase value of a business combination and
- net fair value of identifiable net assets, liabilities and contingent liabilities
Is purchased goodwill an intangible asset?
Yes
Is inherent (internally-generated) goodwill an intangible asset? Why?
No because of lack of individual identity and uncertainty in measurement
What does IFRS 3 say about the treatment of goodwill (in terms of amortisation)?
IFRS 3 prohibits the amortisation of goodwill
Goodwill must be tested for impairment at least annually
How is negative goodwill dealt with?
- if the acquirer’s interest in the net fair value of the acquired identifiable net assets exceeds the cost of the business combination
- that excess must be recognised immediately in the income statement as a gain (immediately written off against profit)
When should an intangible asset be derecognised?
- on disposal; or
- when no future economic benefits are expected from its use or disposal
How do we determine and recognise the gain or loss arising from the derecognition of an intangible asset?
- the difference between the net disposal proceeds, if any, and the carrying amount of an asset.
- it is recognised in profit or loss when the asset is derecognised
- gains shall not be classified as revenue
What is the purpose of disclosures?
disclosures provide additional useful information that the entity may not have been able to communicate in the statements, such as surrounding the unique nature of R&D
