Week 7 - IC Accounting issues Flashcards
What are some internally generated intangible assets?
An entity classifies the generation of the asset into:
- a research phase; and
- a development phases
Expenditure on research will be accounted for as…
Expenditure on research is expensed
What are some examples of research activities
- basically the original and planned investigation to gain new knowledge…
- activities aimed at obtaining new knowledge
- search, evaluation/final selection of research findings
What are development activities
the application of research findings or other knowledge to a plan or design for the production of the new “product” before commercial uses
An intangible asset arising from the development is capitalized if all of the following are met:
1) it is technical feasible to complete the intangible asset so it will be available for use/sale
2) its intention to complete the asset and use or sell it
3) its ability to use or sell the asset
4) how the intangible asset will generate probable future economic benefits
- existence of a market or usefulness of the asset
5) availability of adequate technical, financial and other resources to complete the development
6) ability to measure reliably the expenditure attributed to the asset during development
What do you capitalize as development cost when generating the intangible asset?
- cost of material/services
- cost of employee to generate
- fees to register a legal right
- amortization of patents/licences used
- interest costs
what do you not capitalize as development cost
selling, admin and other general overhead expense unless it can be directly attributed to preparing the asset for use
- cost of training staff to operate the asset
how to measure intangible asset after recognition
intangible asset are measured using
1) cost model
2) revaluation model
What are cost model for intangible asset
cost less any accumulated amortization/impairment loss
what are revaluation model for intangible asset
carried at fair value at the date of revaluation less amortization/impairment
Remember…
if an item of intangible asset is measured using revaluation model, all other intangible asset in that class need to be revalued on the same date unless no active market
intangible asset with finite useful life
need to be amortized
intangible asset with indefinite useful life
required to test an intangible asset with an indefinite useful life for impairment by comparing recoverable cost with carrying cost:
- annually and
- whenever there is an indication that might be impaired
an item is recognized as intangible asset if it meets the following…
- definition of an intangible asset
1) identifiable to distinguish from goodwill. separable/arises from contractual or other legal rights
2) control: power to obtain future economic benefits - meets recognition criteria
1) probable that expected future economic benefit flow to the entity
2) cost of the asset can be measured
2 methods of measuring PPE after initial recognition
1) cost method
carrying value = historical cost less accumulated depreciation and impairment losses
2) revaluation model (ONLY IFRS) - carrying value = FMV at the date of revaluation less accumulated deprecation and impairment losses
ASPE 3064.11
What needs to be met to meet the definition of intangible asset
1) product separately identify
2) company have control of the product
3) there is a market for the product
Also need to meet the definition of recognition criteria…
1) it is probable that future economic benefit that are attributable to the asset will flow to the entity.
2) cost of the asset can be measured reliably
What’s different under ASPE for development cost that are eligible for capitalization
Company have the ability to expense the development cost if they chose to
How to analyze whether to recognize a non-refundable deposit amount under ASPE 3400.
e.g. deposit for a design plan that will be used in the remaining project
1st step - whether there are separately identifiable components and should be treated as a separately identifiable component
What to do for non-monetary transaction ASPE 3831.06
Non-monetary transaction
Company must measure the asset exchanged at the more reliably measurable of the fair value of the asset given up and the fair value of the asset received:
unless:
1) The transaction lacks commercial substances (the configuration of CF associated with assets received differs from configuration of CF associated with revenue that would’ve been earned from sale of asset
2) The transaction is an exchange of a product or property held for sale in the ordinary course of business for a product/property to be sold in the same line of business to facilitate sales to customers other than the parties to the exchange
3) neither the FV of assets received/FV of asset given up is reliably measurable
If both assets received and asset given have FV, which side should be recorded as the transaction amount for non-monetary transactions
ASPE 3831.10 states that “when an entity is able to reliably determine the FV of both assets, FV of the asset given up is used to measure the asset received unless the FV of the asset received is more reliably measurable
What do ASPE require for recognition of impairment loss
when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value (ASPE 3063.04)
How should the amount of impairment be recorded under ASPE?
First, determine the asset’s recoverable amount
- under ASPE it’s undiscounted cash flow
if the carrying amount exceeds the recoverable amount then an impairment loss exists.
Next, determine fair value and compare to the carrying amount. If carrying amount exceed fair value impairment loss should be recorded
How to classify an asset as a non-current asset held for sale. (ASPE)
ASPE 3475 - requires a long-lived asset that is to be sold classify as held for sale when all following are met:
1) Management having the authority to approve the action, commits to a plan to sell
2) The asset is available for immediate sale in its present condition subject to terms that are usual and customary for sale of such asset
3) an active program to locate a buyer and other actions required to complete the sale plan have been initiate
4) The sale is probable, and is expected to qualify for recognition as a completed sale within 1 year
5) asset is being actively marketed for sale at a price reasonable in relations to its current fair value
6) actions required to complete the plan indicate that it is unlikely that significant change to the plan will be made or withdrawn
What happens when an asset is a held for sale?
NBV of asset should be removed from PPE and classified as held for sale separately on BS.
The asset can be present as current asset if it’s sold prior to the date of completion of FS or proceeds or sale are expected to be realized within a year
