Chapter 4 Intangible Assets

Question 1

Intangible asset (IAS38)

Answer 1

An intangible asset is an identifiable non-monetary asset without physical substance.

Question 2

Recognition

Answer 2

• Probable future economic benefits are attributable to the asset will flow to the entity.
• The cost of the asset can be reliably measured.

Question 3

Measurement at recognition

Answer 3

1. Separate acquisition - Cost
2. Acquired as part of a business combination - Fair Value (IFRS 3)
3. Internally generated goodwill - Not recognised
4. Internally generated intangible assets - Recognised when PIRATE criteria met

Probable future economic benefits
Intention to complete and use/sell asset
Resources adequate and available to complete and use/sell asset
Ability to use/sell asset
Technical feasibility of completing asset for use/sale
Expenditure can be measured reliably

Research phase - all expenditure recognised as an expense
Development phase - all PIRATE must be capitalised

5. Acquired by government grant - Asset and grant at FV or nominal amount + expenditure directly attributable to preparation for use

Question 4

Measurement after recognition

Answer 4

1. Cost model

Cost less accumulated amortisation and impairment losses

2. Revaluation model

Revalued amount less subsequent accumulated amortisation and impairment losses

• The revaluation must be fair value at the date of the revaluation by reference to an active market.
• All other assets in the same class must be revalued.
• Uncommon for an active market to exist for intangible assets.

Question 5

Amortisation/impairment tests

Answer 5

1. Finite useful life
   The depreciable amount (cost/revalued amount - residual value) is allocated on a systematic basis over useful life.

The residual amount is normally assumed to be zero.

Must be reviewed at least at each financial year-end.

2. Indefinite useful life
   Not amortised.

Impairment tests are conducted at least annually (IAS 36).