IAS 38 - Intangibles

• Intangible asset


  An identifiable non-monetary asset without physical substance
• Identifiable


  • It is separable - the asset can be bought or sold separately from the rest of the business
  • It arises from legal/contractual rights
• Criteria for recognition of an intangible asset

  • Meets the definition of an intangible asset
  • Controlled by the entity
  • It is probable that future economic benefits attributable to the asset will flow to the entity
  • The cost of the asset can be measured reliably
• Initial recognition of an intangible asset

  Cost (purchase price) + Directly attributable cost + non-refundable purchase taxes - trade discounts and rebates
• Intangible assets acquired in a business combination

  • Goodwill - Excess of consideration paid over the value of the subsidiary's net assets
  • Intangible assets (e.g. patents, copyrights, and brands) should be measured at their fair value on the date they were acquired
• Subsequent measurement models for intangible assets

  • Cost model
  • Revaluation model
• Cost model


  Cost less accumulated amortisation less any accumulated impairment loss
• Intangible asset with a finite useful life

  Must be amortised over that life, normally using the straight-line method with a zero residual value
• Intangible asset with an indefinite useful life

  Should not be amortised, but should be tested for impairment annually
• Revaluation model


  Revalued the carrying amount to its fair value less subsequent amortisation and impairment losses
• Active markets are unlikely to exist for intangible assets due to the low volume of transactions and their rare/specialised nature
• Internally generated intangible assets

  Generally, internally-generated intangible assets cannot be recognised as an asset as the costs associated with these cannot be identified separately from the costs associated with running the business
• Research


  Original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding
• All expenditure that arises in the research phase should be recognised as an expense when it is incurred</b>
• Development expenditure


  Can be recognised as an intangible asset if, and only if, an entity can demonstrate all of the following criteria
• Criteria for capitalising development expenditure


  • Probable flow of economic benefit from the asset, whether through sale or internal cost savings
  • Intention to complete the intangible assets and use or sell it
  • Reliable measure of development cost
  • Adequate resources to complete the project
  • Technical feasibility of completing the intangible asset so that it will be available for use or sale
  • Expected to be profitable
• UK GAAP vs IAS 38 - Development Cost

  • IAS 38 - Mandatory to capitalise upon meeting the criteria
  • FRS 102 - Optional to capitalise development costs that meet the capitalisation criteria
• UK GAAP vs IAS 38 - Useful Life

  • IAS 38 - Intangible assets can have an indefinite life
  • FRS 102 - All intangible assets have a finite useful life with a rebuttable presumption that this should not exceed 10 years