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IAS 38: Intangible Assets - Coggle Diagram
IAS 38: Intangible Assets
IAS 38 Intangible Assets
About
Identifiability criteria:
Separable
Legal right (constructive/other)
Excludes:
Financial instruments
Deferred tax
Leases
Goodwill (IFRS 3)
Employee benefits
Inventories
IFRS 5 (Intangible asset)
Definition
Identifiable
Non-monetary
Without physical substance
• Computer software
• Patents
• Copyrights
• Motion picture films
• Customer lists
• Mortgage servicing rights
• Licenses
• Import quotas
• Franchises
• Customer and supplier relationships
• Marketing rights
Initial
Measurement
Measured at Cost
Recognition:
1.Definition
Probable Future economic beneftis
Cost measured reliably
Par 57 for internally generated
Subsequent
Revaluation Model:
FV in active
market
Gains/losses to OCI (RS), realised through use /on sale to RE
INDEFINITE useful life
NOT AMORTISED
REVALUE
Test for impairment ANNUALLY
FINITE useful life
AMORTISE:
RV = zero, unless active market/ buyer
Straight-line basis
REVALUE
Cost Model
INDEFINITE useful life
NOT
AMORTISED
Test for impairment ANNUALLY
FINITE useful life
AMORTISE:
RV = zero, unless active market/ buyer
Straight-line basis
DERECOGNITION
No future economic benefits
Disposal
Remember
Definition
Asset
• A resource controlled by the entity as a result of past events,
• From which future economic benefits are expected to flow to the entity
Intangible asset
• An identifiable non-monetary asset
without physical substance
Identifiability criterion is met when an intangible item:
Is separable
Arises from contractual or other
legal rights
Control criterion is met when:
Exchange transactions for the same or similar item (= separable)
Other
Legal rights that are enforceable in a court of law
IAS 38 applies to all intangible assets other than:
• financial assets
• exploration and evaluation assets (extractive industries)
• expenditure on development and extraction of minerals, oil, natural gas, and similar resources
• intangible assets arising from insurance contracts issued by insurance companies
• intangible assets covered by another IFRS, such as
intangibles held for sale
deferred tax assets
lease assets
assets arising from employee benefits
and goodwill (IFRS 3)
Initial measurement
At cost
Acquisition in a business combination
Cost equals fair value
Internally generated intangibles
Expenditure incurred in development phase
Separately acquired
Acquisition cost
Internally Generated Intangible Assets
Development phase
CAPITALISE (par 57)
•
Technical feasibility
•
Intention to complete
•
Ability to use / sell
•
How FEB will be generated
•
Availability of resources to complete
•
Measure development costs reliably
Dr IGA (FP) x
Cr Bank/Exp/Asset x
No capitalisation of costs previously expensed
IAS 23 for treatment of interest to be capitalised
NB!!
You only capitalise direct costs and not indirect costs
Note!! that capitalization will apply once Par 57 is met. Therefore, during the development phase when Par 57 is met and the product is functional, those costs will be capitalized in the SFP. When the development is complete, the costs incurred at that time will be expensed.
There are three periods...Research Phase> Research meets Par 57> Complete product...look for this in the question paper
EXPENSE
Dr Develop expense (PL) x
Cr Bank/Exp/Asset x
• Expensed unless capitalised ito par 57
• Expensed unless part of goodwill in business combination
Research phase
EXPENSE
• Entity cannot demonstrate that FEB are probable
• Expense in PL as incurred
Dr Research expense (PL) x
Cr Bank/Exp/Asset x
Costs to be expensed
• Costs that do not meet recognition criteria are expensed (including not meeting the definition of an intangible asset)
Internally generated goodwill
Internally generated brands, mastheads, publishing titles, customer lists and items “similar in substance”
Research
Start-up costs (establishment, pre-opening and pre-operating costs)
Training
Advertising and promotional activities
Relocating and re-organising (restructuring)
Intangibles can be acquired
• by separate purchase
• as part of a business combination
• by a government grant
• by exchange of assets
Separately identifiable intangible assets acquired
Recognition criteria:
2. Costs reliably measured
Costs comprise:
Directly attributable expenditure on preparing asset for its intended use
e.g., employee benefits,
professional fees, function testing
Purchase price + import duties + non-refundable purchase taxes - trade discounts – rebates
Recognition of costs ceases when asset is in condition necessary to operate per management intention
PV cost if deferred payment terms
1. Probable future economic benefits
Probability of Future Economic Benefits
:
Price will reflect expectations concerning probability, i.e., entity expects an inflow of FEB even if there is uncertainty regarding timing or amount of the inflow
∴
Probability criteria always satisfied for separately acquired intangible assets
Separate acquisition
Excludes:
• Cost of introducing a new product or service (advertising/promotion)
• Costs of conducting business in a new location or with new class of customers (staff training)
• Admin and general overhead costs
• Incidental operations
Cost includes:
Directly attributable expenditure on preparing the asset for its intended use - e.g., employee benefits, professional fees, function testing
Purchase price + import duties + non-refundable purchase taxes - trade discounts - rebates
Acquisition as part of business combination
Cost = fair value at date of acquisition
Intangible Asset recognised seperately from goodwill.
Must meet definition of an asset
and
be identifiable
(seperable or legal / contractual rights)
Value measured reliably
Why?
If identifiable
then
sufficient information will exist to measure reliably.
Range of outcomes? Uncertainty accounted for in the valuation estimate
Reliable measurement
Always satisfied
if acquired via a business combination.
Fair Value
No Active Market = what would entity have paid in arms length transaction (between knowledgable willing parties) for the asset? Reference:
Discounted cash flows models
Estimating costs the entity will avoid
Active market
=
most recent
transaction price or bid
Amortisation and impairment
Intangible assets
Indefinite useful lives
Test for impairment
• annually, and
• whenever there is an indication that the intangible asset may be impaired
Finite useful lives
Amortise
over useful life
T
est for impairment
, when there is an indication
Derecognition
Retirements and disposals
• Apply the criteria in IAS 18 to determine date of disposal
• Apply IFRS 5 when asset is held for sale
• IAS 17 applies to disposal by sale and leaseback
• Generally recognise a gain or loss in profit or loss when the asset is derecognised
• An asset is derecognised:
On disposal (e.g., sale or finance lease); or
When no future economic benefits are expected from its use or disposal
Disclosure
For each class of intangible asset, disclose:
• Useful life / amortisation rate
• Amortisation method
• Gross carrying amount
• Accumulated amortisation and impairment losses
• Line items in profit or loss in which amortisation is included
Recon of CA at beginning and the end of the period showing
additions (business combinations separately)
assets held for sale
retirements and other disposals
revaluations
impairments
reversals of impairments
amortisation
foreign exchange differences
Basis for determining that intangible has an indefinite life
• Description and CA of individually material intangible assets
• Certain special disclosures about intangible assets acquired
by way of government grants
• Information about intangible assets whose title is restricted
• Contractual commitments to acquire intangible assets
• Additional disclosures are required about:
Intangible assets measured at revalued amounts
Amount of research and development expenditure recognised as expense in the current period