Lecture 6 - Intangible Assets Flashcards
What is IAS 38’s definition of an intangible asset?
An intangible asset is an ‘identifiable, non-monetary asset without physical substance’
For an intangible asset to be identifiable, one of two criteria must be met, what are the two criteria?
- The intangible is separable from the entity - Capable of being sold, transferred, rented or exchanged.
- Arises from contractual or other legal rights - Trademarks, logos, franchise etc.
It doesn’t matter if these rights are separable.
Once an asset has met the definition of an intangible asset, it needs to satisfy the following recognition criteria:
A) it is probably (over 50%) that future economic benefit will follow
B) The cost can be measured reliably
If an asset fails to meet the recognition criteria, it is…
Expenses in the income statement
Intangible assets are to be measured at initial cost, for separately acquired intangibles this is…
Cost = Purchase price + Directly attributable costs
Intangible assets are to be measured at initial cost, for intangibles acquired as part of a business combination this is…
Cost = Fair Value at the date of acquisition
The two reasons given for IAS 38’s non-recognition of internally generated assets are:
1) The issue of identifying assets which will probably produce future economic benefit.
2) The cost cannot be determined reliably.
What are the two stages of research identified by IAS 38?
The research stage
And
The development phase
In the research stage of an internally generated intangible asset is is uncertain…
An asset is being produced and future economic benefit will follow
In the development phase of an internally generated intangible, it becomes more clear…
Whether an asset will produce future economic benefit
What are the 6 characteristics that intangible assets in the development phase must meet in order to be recognised?
- Technical feasibility that the asset will be completed.
- Intention to complete the asset and use or sell it.
- Ability to use or sell the asset.
- Probably future generation of economic benefit by the asset.
- Availability of resources to complete the development work and use or sell the asset.
- Ability to reliably measure the expenditure attributed to the asset during its development.
What happens if an internally generated intangible asset fails to meet the 6 recognition criteria in the development phase?
The development expenditure must be written off as an expense when it is incurred.
The cost of an internally generated intangible asset is the sum of…
All the directly attributable costs incurred before the date the asset is first recognised
What is included in the cost of an internally generated intangible asset?
- Cost of materials and services
- Labour costs
- Legal fees
- Amortisation of patents used to generate the asset
What is not included in the cost of producing an internally generated intangible asset?
- Selling
- Admin expenses
- Staff training costs
- Advertising costs (THIS may be on the EXAM)
