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NOA (Intangibles) (Issues (Recognition (R&D Costs:
Charge all…
NOA (Intangibles)
Issues
Recognition
R&D Costs:
- Charge all research cost to expenses on the income statement
- Development costs capitalised only after technical and commercial feasibility has been established
- If entity cannot distinguish the research phase of a project to create an intangible asset from the development phase, expditure for the project is treated as if it were incurred in the research phase only
Acquired in-process R&D:
- Recognised as an asset at cost
- Subsequent expenditure on that projec is accounted for as R&D costs
Computer software:
- Purchased: Capitalise at cost
- Developed: Charge to expenses until technological feasibility
Charged to expense when incurred:
- Internally generated goodwill
- Internally generated brands
- Start-up, pre-opening, and pre-operating costs
- Training costs
- Advertising and promotional costs
Measurement
Possible approaches:
- Value based on total expenses
- Value based on total profits/earnings associated to intangible assets
- Qualitative metrics
- If we cannot arrive at a value, we canot recognise the asset.
- If we have more than 1 value, we choose which is the most appropriate value to use.
Subsequent Measurement
Cost Model
- Intangible assets classified either as infinite life (no foreseeable limit to period which asset is expected to generate net cash inflows) or finite life
- Infinite life: Should not be ammortised
- Finite life: Should be amortised on a systematic basis over that life, and reflect pattern of benefits
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IAS 38: Intangibles
Definition: An identifiable, non-monetary, asset without physical substance.
3 critical attributes:
- Identifiability: Is separable (capable of being separated and sold either individually or together), and arises from contractual or other legal rights
- Control: Power to obtain benefits from the asset
- Future economic benefits
Examples:
- Goodwill (difference between fair value and book value)
- Operating licenses and franchises
- Brands
- Patents
- R&D
Methods:
- Interbrand
- Financial World
- Houlihan Valuation Advisors