Intangible Assets

Question 1

Intangible Assets - Definition

Answer 1

To meet the definition of an intangible asset, all the following criteria must be met:

1. The asset is identifiable, which is illustrated as either:
   a) being separable such that it can be transferred/sold to another entity
   b) arising from contractual or other legal rights
2. The entity controls the future economic benefits of the asset.
3. The asset will generate future economic benefits.

Question 2

Intangible Assets - Recognition

IAS 38: Recognition and measurement

Answer 2

Recognize if:
1. probable that FEB will flow to the entity; and
1. cost can be reliably measured

• Essentially, they are items that generate future value for an entity, but the value comes from the rights and privileges they provide the entity, which often cannot be physically seen.

If acquired in a business combination, probability
is always assumed to be met if FV can be
determined. Cost is the FV at the date of the
business acquisition.

Question 3

Separate acquisition

Answer 3

When an intangible asset is acquired separately, it is normally expected that the asset will generate future economic benefits by the very fact that the entity was willing to purchase it, as demonstrated in the example above.

Costs that can be included are direct costs of the purchase (such as purchase price, legal costs, and non-refundable taxes), as well as any directly attributable costs of preparing the asset for its intended use (such as costs of testing or customization). Legal fees to successfully defend patents, trademarks, and so on are normally capitalized to the asset as this further establishes the holder’s legal rights.

Question 4

Internally generated intangible

IAS 38: Recognition and measurement

Answer 4

The generation of an internally generated intangible asset can be classified in two phases:

Research costs — Expense

**Development costs **— Capitalize costs incurred
after the point in time when all criteria are met:
1. Technical feasibility of completion
2. Intent to complete
3. Ability to use or sell
4. Probable future economic benefits
5. Adequate technical, financial, and other
resources are available
6. Ability to reliably measure the expenditures

Development phase - IAS 38.57

Note that IAS 38.63 specifically excludes internally generated
brands, publishing titles, customer lists, and similar items from being capitalized. The rationale
provided is that expenditures on these items cannot be distinguished from the cost of developing the business as a whole (in other words, the separability criterion is not met).

Question 5

Subsequent measurement

Answer 5

Choice of:
* cost model
* revaluation model — only available for
intangible assets that are traded on an active
market

Asset with finite life
— amortize using straight-line, declining
balance, or units of production methods
over lesser of useful or legal life
— test annually for impairment

Asset with an indefinite life (including goodwill):
— not amortized
— assessed at least annually for impairment

Question 6

ASPE differences

ASPE 3064

Answer 6

• Policy choice to capitalize or expense
  development costs (that meet capitalization
  criteria) for all internal projects.
• Revaluation model is not an option.

Question 7

Development costs eligible to be capitalized

Answer 7

Directly attributable:
*costs of materials/services used to generate
the intangible asset
*costs of employee salaries, wages, and
benefits incurred to generate intangible asset
*fees to register a legal right
*amortization of patents and licences used to
generate the intangible asset
*interest costs (in accordance with IAS 23)

Question 8

Development costs not eligible to be capitalized

Answer 8

• selling, administrative, and other general overhead
  expenditures unless the expenditure can be
  directly attributed to preparing the asset for use
• inefficiencies or initial operating losses incurred
  before planned performance is achieved
• cost of training staff to operate or use the asset

Question 9

Research

Answer 9

• The costs from this phase are expensed because during the research phase, an entity cannot demonstrate that the expenditures will result in a future economic benefit.
• Typical research activities include: *obtaining new knowledge of a market; looking for, evaluating, and selecting research findings; and determining alternatives for new processes or techniques. *

Question 10

Development

Answer 10

• In the development phase, it is expected that the entity has moved from a state of looking at potential options to focusing work on a specific objective that it plans to use to create economic benefits.

Per IAS 38, the entity must be able to demonstrate:
1. the technical feasibility of completing the intangible asset so that it will be available for use or sale
—Is the asset technically able to be completed?

2. its intention to complete the intangible asset and use or sell it
   — Does the entity plan to complete it?
3. its ability to use or sell the intangible asset
   — Once completed, does the entity have a use for the asset?
4. how the intangible asset will generate probable future economic benefits: among other things, can the entity demonstrate the 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
   —* When the asset is in use, will it generate economic benefits?*
5. the availability of adequate technical, financial, and other resources to complete the development and use or sell the intangible asset
   — As the entity plans to complete it, does it have the means to do so? Often this is focused on having the money available to complete the development.
6. its ability to measure reliably the expenditure attributable to the intangible asset during its development
   — Does the entity know the costs that are directly attributable so that it can measure the asset?