Intangible Assets

Question 1

What is the definition of an intangible asset?

Answer 1

According to IAS 38, It is an
- identifiable
* capable of being separated from the entity
* can be sold transferred, licensed, rented or exchanged OR
* arises from contractual or legal rights

• non-monetary
• not a fixed amount of money
• Asset
• must be controlled
  / power to obtain future economic benefits AND
  / restrict access to benefits from others
  /normally a legal right but not always
• as a result of past events
• without physical substance
• can require judgment if physical and non physical elements to asset
• from which future economic benefits are expected to flow
• can be inflow of revenue or reduction of an expense

Question 2

What legislation deals with intangible assets?

Answer 2

IAS 38

Question 3

What are the important sections to consider when dealing with intangible assets?

Answer 3

• definition
• recognition criteria
• where the asset arose from
• measurement
• deferred Tax
• disclosure

Question 4

What are the recognition criteria of an intangible asset?

Answer 4

• probable that future economic benefits from the asset will flow to the entity
• cost can be reliably measured

Question 5

What impact does it have if the asset arises from a SEPARATE acquisition?

Answer 5

• the price paid reflects the probability that future economic benefits will flow to the entity and so that recognition crit is always considered satisfied
• cost usually measured reliably from purchase consideration

Question 6

What impact does it have if the asset arose from being part of a business combination?

Answer 6

• the cost = FV at acquisition date
• the FV also accounts for probability that future economic benefits will flow to the entity, so the RC is satisfied (that point at least)
• if asset is idenitifble, then sufficient information exists to reliably measure FV which means the other RC is also always satisfied
• the acquirer will recognize an intangible asset that meets the RC even if the acquiree hasn’t recognized it
• in process research and development meets the definition of an intangible asset if
• meets definition of asset
• identifiable
• something about subsequent expenditure

Question 7

What is the impact if the asset arose from the government or a grant?

Answer 7

• it could have been acquired for free or for a nominal charge
• they can choose to recognize it at cost or its FV

Question 8

What is the impact if the asset arose through the exchange of assets?

Answer 8

Accounted for at FV, unless the exchange lacks commercial substance

Question 9

What is the impact if the intangible asset acquired is internally generated goodwill?

Answer 9

It should never be recognized

Question 10

What is the impact if the asset arose from internal generation?

Answer 10

• the research phase(costs) cannot be recognized as an asset because we can’t demonstrate future economic benefits are probable
• the development stage costs can be recognized if All of the following is demonstrated
• technical feasibility to complete
• intention to complete
• ability to use or sell
• how it will generate future economic benefits
• avaliablility of adequate technical, financial and other needed resources
• ability to reliably measure the expenditure

-the reliable measurement of the cost
* includes
/ materials
/ employment costs
/ directly attributable
/ overheads allocated on reasonable basis
* something else on the notes

• costs previously expensed cannot be reinstated

Question 11

How does one measure an intangible asset?

Answer 11

Initially
- IAS 38 requires all intangible assets to be recognized at cost initially

Subsequently
- check if it is being measured through the cost model or revaluation model, if revaluation model
* entire class must be re valued
* if reliable FV cannot be determined, use last FV or if none, use cost

• check what the deprecation needs to be
  / useful life
• if finite useful life, as usual
  > useful life cannot exceed the term of the contract of intangible asset
• if indefinite useful life, there is no depreciation or amortization
  / residual value
• assumed zero unless the following
  > commitment to purchase by 3rd party at end of useful life
  > active market and FV can be reliably measured with reference to the market
  > active market and it is probable that the market will still exist at the end of its useful life
  / when was it available for use?
  / method
• must reflect the pattern in which economic benefits are used otherwise straight line method
• must review it each balance sheet date
• impairments
  / useful life
  *if indefinite useful life, check for impairments every year
• check useful life every year if useful life still indefinite
• other costs
• what does the class example say?
• disposals

Question 12

What does SIC 32 say about intangible assets?

Answer 12

I don’t know yet