Intangible Assets

Question 1

Check in question

Answer 1

Question 2

The conceptual Framework - asset definition

3 points about it

Answer 2

An asset is:

‘A resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.’

• No reference to physical substance
• Can be created from expenditure by the entity
• May be a cash inflow or cost saving

Question 3

Definition of intangible asset - IAS38

3 things about the definition

What are excluded (4)

Answer 3

An identifiable non-monetary asset without physical substance under the control of the entity.

• Separable - can it be sold, transferred etc

OR

• Arises from a contractual or other legal right

Internally generated goodwill is excluded
As are training costs, advertising costs and start up costs

under the control = right to future economic benefit

Question 4

Recognition – general

Recognise only if: (2)

What does IAS 38 specifically exclude? (5)

Answer 4

Recognise only if:

• It is probable future economic benefits are expected to flow AND
• Cost can be measured reliably (like a trademark, can be very subjective in auditing)

IAS 38 specifically excludes internally generated brands, mastheads, publishing titles, customer lists

Question 5

What are examples of internally generated intangibles?

Answer 5

E.g.

• during the pandemic, many companies developed vaccines in-house
• Some companies might develop their own IT system
• A gaming company will spend a lot of time and resources developing new games

Question 6

Internally generated intangible assets: some costs may be capitalised

What are the 2 phases
Examples?
Criteria (6)?

Answer 6

Research phase

• E.g. Obtaining knowledge, search for, evaluation and selection of applications for knowledge
• ALL costs should be recognised as expenses when they occur

Development phase

• E.g. Design re new tech, prototypes, alternatives etc
• If specific criteria met => MUST capitalise

Strict criteria that must be satisfied

• Completing to stage or use of sale is technically feasible
• There is an intention to complete
• There is an ability to use or sell
• Able to demonstrate that probable future economic benefits exist – commercially viable
• Adequate technical, financial and other resources available to complete
• Attributable expenditure can be reliably measured

Question 7

IAS 38 summary for research & development

Answer 7

Question 8

Subsequent measurement of intangible assets

2 models and which IAS?

Note that?

Answer 8

IAS 38 allows a choice between:

Cost model

• asset carried at cost less accumulated amortisation and impairment

Revaluation model

• asset carried at fair value at date of revaluation less accumulated amortisation & impairment

Note that rather than depreciation, intangible assets have amortisation charged against them
This is charged in the same manner as depreciation for tangible assets

Question 9

Revaluation model

What is it?
Rules to say it is an active market? (3)

Treatment of ______________ _______ and __________ ________ as for _____

Answer 9

Fair value measured reliably with reference to active market

Rules for an active market:

• Items traded are homogenous
• Willing buyers and sellers available at any time
• Prices are available to public

Treatment of revaluation gains and losses same as for PPE (Property, plant and equipment)

Question 10

Amortisation – finite life intangible assets

• Over ____________ _______ ______
• Start when _______ ____________ for use
• ________ when classed as ‘_______ ____ _____’ or _____________
• Method should _________ __________ of consumption of ____________ ____________
• Residual value generally ____

Try to do without gap fill

Answer 10

Amortisation – finite life intangible assets

• Over expected useful life
• Start when asset available for use
• Cease when classed as ‘held for sale’ or derecognised
• Method should reflect pattern of consumption of economic benefit
• Residual value generally nil

Question 11

Indefinite life intangible assets

• Eligible for _______________ under IAS __
• Definition:
• Per IAS __ Impairment of assets such assets should not be _____________ but an ___________ _______________ ________ must be carried out

Answer 11

Indefinite life intangible assets

• Eligible for capitalisation under IAS 38
• Definition: no foreseeable limit to the period over which the asset is expected to generate net inflows
• Per IAS 36 Impairment of assets such assets should not be amortised but an annual impairment review must be carried out

Question 12

Disposal of intangible assets

Eliminated from SoFP when: (2)

Answer 12

Eliminated from SoFP when:

• Disposed of
• No further economic benefit

Any gain or loss included in income statement as a gain or loss on disposal

Question 13

Intangible assets – examples

1. An advertising campaign has just been completed at a cost of £1.5m. The directors authorised this campaign on the basis of the evidence from the advertising agency that it would create £4m of additional profits over the next two years. How much should be capitalised as an intangible asset in relation to this campaign under IAS 38 Intangible assets?
2. A staff training programme has been carried out at a cost of £250,000. The training consultants have demonstrated to the directors that the additional profits to the business over the next 12 months will be £400,000. How much should be capitalised as an intangible asset in relation to this training programme under IAS 38 Intangible assets?
3. A new product has been developed during the year. The expenditure totals £1.2m, of which £750,000 was incurred prior to 31 December 20X6, the date on which it became clear the product was technically feasible. The new product will be launched in the next three months. How much can be capitalised in relation to this product development under IAS 38 Intangible assets?

Answer 13

1. Nothing can be capitalised/ £1.5m written off to profit or loss
2. Nothing can be capitalised. £250k written off to profit or loss
3. Costs can be capitalised from the date the product became technically feasible and commercially viable i.e 31.12.X6. £1.2m -£750k = 450k to capitalise (make sure you do after it is technically feasible not before)

Question 14

Sales of the product commenced on 1 November 20X2, and it is expected that the product will have life of three years, with a residual value of fnil. What would be the net book value of the asset as at 31 October 20X3 per IAS 38 Intangible Assets?

Answer 14

Question 15

Disclosures

For each class of intangible assets: (5)

Answer 15

For each class of intangible assets:

• Method of amortisation
• Useful life or amortisation rate
• Gross carry value and accumulated amortisation at beginning and end of period
• Which line in the income statement the amortisation is included in
• A reconciliation of the carrying amount at the beginning and end of the period