Once the research phase on a project has been completed
the outlays are classified as development
When can development outlays be capitalised to recognise an intangible asset
- the technical feasibility of completing the intangible asset so that it will be available for use or sale;
- its intention to complete the intangible asset and use or sell it;
- its ability to use or sell the intangible asset;
- how the intangible asset will generate probable future economic benefits (existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset)
- the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset;and
- its ability to measure reliably the expenditure attributable to the intangible asset during its development.
can research be capitalised
No, only development outlay can be capitalised
Intangible assets that can never be recognised regardless of whether meeting recognition criteria test
Research costs
specific internally generated intangible assets:
brands, mastheads, publishing titles, customer lists
Why can’t specific internally generated intangible assets:
brands, mastheads, publishing titles, customer lists
be recognised?
unable to measure the costs b/c cost of developing these assets is indistinguishable from cost of developing business as a whole
Separate acquisition. How are intangible assets measured
by cost = sum of purchase price and directly attributable costs
Directly attributable costs
Costs incurred to bring the asset to the location and condition necessary for it to be capable of operating in the manner intended by management
How do assets by separate acquisition meet recognition criteria?
Probability criterion is always met b/c buyer of an asset will determine the price to be paid by taking into account the probability of the future benefits to be received.
Cost of asset reliably measured b/c of consideration
Difference between separate acquisition and acquisition as part of business combination
Separate acquisition: acquires individual intangible assets
Business combination: acquired a group of assets rather than a single asset and one of the assets in the group is an intangible asset.
Does recognition criteria apply to assets acquired as part of business combination?
No, as long as asset meets the definition of intangible asset
Definition of intangible asset
- Identifiable - separable or arises from contractual or other legal rights
- Non-monetary
- lack of physical substance
Asset is separable
capable of being separated from the entity. The asset could be separated if the entity sold, licensed, rented, exchanged or transferred the asset
Customer satisfication
Is not separable from the entity
Identifiable: Contractual or other legal rights
e.g. an entity has a right to use 2 million litres of water per annum in its production process
Is goodwill an asset
Goodwill is not an intangible asset as it is not a separable asset, and an entity does not have legal or contractual rights to the asset.
