Topic 7- Intangible assets IAS 38 Flashcards
What is the definition of intangible asset?
3 characteristics
‘An intangible asset is an identifiable, non-monetary asset without physical substance’. – IAS 38
what does identifiable mean
this means that the intangible asset must be able to be bought or sold separately from other intangible assets, or that it arises from the purchase of a company (i.e goodwill!).
what other criteria must an intangible asset meet?
and provide explanation/definiton of that criteria
it should also meet the definition of an asset
A present economic resource controlled by the entity as a result of past event
Therefore, to recognise an asset we must meet the definition of an intangible asset and also meet the recognition criteria of a non-current asset
what is the initial measurement of an intangible asset
initially measured at cost.
DR Intangible asset X CR Bank (X)
what is the subsequent measurement of an intangible asset
like IAS 16 you can choose either the cost model or the revaluation model to subsequently measure intangibles
what is required for the revaluation model to be chosen
it requires a market
what is the cost model for intangible assets subsequent measurement
similar to IAS 16- it will be original cost less any amortisation
if the useful economic life is not known of an intangible asset, how do we amortise?
you DO NOT amortise.
you only test for impairment regularly
what is the revaluation model for intangible assets subsequent measurement
same as IAS 16
I.e. revalue at end of each year
gains or losses taken to SOCIE
still have to depreciate
but depreciation is reset
What is the definition of research according to IAS 38
‘Research is an original and planned investigation undertaken with the prospect of gaining new scientific
knowledge and understanding’.
What is the definition of Development according to IAS 38
‘Development is the application of research findings or other knowledge to a plan or design for the production
of new of substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use’.
how are research cost dealt with?
because these are just ideas that are researched, they are essentially expense so they are immediately expensed to P/L
how are development cost dealt with?
and what criteria must be met - identify the acronym
If the costs of a project are deemed to be development expenditure then the expenditure should be capitalised if the criteria are met (we use the mnemonic PIRATE)
what are the criterias that must be met for development cost?
PIRATE
Probable that economic benefits will inflow from the IA whether through savings or sale
Intention to sell or use the asset
Reliable measurement of cost
Adequate resources to complete the project
Technical feasibility
Expected to be profitable
When costs are capitalised, amortisation should be charged as normal over the economic useful life of the
development costs.
when does amortisation begin?
Amortisation starts from the date that commercial production begins.
