ias 38 intangible assets (2)
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04/08/2023 IAS 38 Intangible Asset Part Two 1
IAS 38 Intangible Assets (part two)Accounting treatment and disclosure
04/08/2023 IAS 38 Intangible Asset Part Two 2
Recognition and measurement
Recognise if:◦Probable expected future economic
benefits attributable to the asset will flow to the entity
◦Cost can be measured reliablyAssess the probability
◦Using reasonable and supportable assumptions
◦Represent management’s best estimate of economic conditions over useful life of asset
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Subsequent expenditure on research and development project Research phase:
◦ Treat as expense when incurred
Development phase◦ Treat as intangible asset if the entity can demonstrate
all of the following: Technical feasibility Intention to complete Ability to use or sell it How economic benefits will be generated Available resources to complete, use or sell Able to measure reliably expenditure during development
Internally generated brands, mastheads, publishing titles, customer lists etc are expensed as incurred
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Recognition of an expenseRecognise expenditure on
intangible item as expense unless ◦Intangible asset meets recognition
criteria◦Acquired in a business combination
as part of goodwillOnce recognised as expense, it
cannot be recognised as an asset at a later date
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Measurement
Cost Model Revaluation Model
Cost
Less accumulated amortisation
Less accumulated impairment loss
Fair value at date of revaluation
Less accumulated amortisation
Less accumulated impairment loss
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RevaluationFair value is determined by an active market
◦ If no active market, use cost model◦ If revalued but no longer in active market, use last
revaluation by reference to active market & test for impairment
Revaluations made regularlyCarrying amount does not differ significantly
from fair value at balance sheet dateCredit increase to revaluation surplus in equity
unless it reverses a decrease previously recognised as expense
Debit decrease as expense after any credit balance in equity has been reversed
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Useful lifeDecide if useful life is finite or indefiniteIf definite, how long will it generate net
cash inflows?No forseeable limit to period of net
cash inflows = indefinite useful lifeDoes not exceed period of contractual
or legal rights but can be shorterInclude renewal periods if evidence
supports renewal without significant cost
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Intangible assets with finite useful lifeAllocate depreciable amount on a
systematic basis over its useful lifeBegin amortisation when available for useCease when asset is classified as held for
sale or derecognisedAmortisation method to reflect pattern of
economic consumptionUse straight line method if no other
method is appropriateRecognise amortisation in profit or loss
unless another standard permits adding it to the carrying amount of another asset
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Residual ValueAssume residual value of asset
with finite life is zero unless :◦A third party has committed to buy it
at the end of its useful life◦There is an active market for the
asset Residual value can be determined by
reference to active market Probable that the active market will exist
at the end of the useful life
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Review of amortisation period and amortisation methodReview at each financial year endChange amortisation method if
◦useful life is different from previous period
◦Change in expected pattern of consumption of future economic benefits
◦Treat as change in accounting estimate per IAS8
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Intangible assets with indefinite useful livesDo not amortiseReview at each period endTreat change from indefinite to
finite life as change in accounting estimate according to IAS8
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Retirements and disposalsDerecognise an intangible asset
whenDisposedFuture economic benefits are no longer
expected
Net disposal proceeds – carrying amount of asset = gain or loss
Recognise in profit or loss when asset derecognised
Do not classify gains as revenue
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DisclosureDistinguish between internally
generated assets and other intangible assets◦ Indefinite or finite useful life◦Amortisation rates used◦Amortisation methods used◦Gross carrying amount◦Accumulated amortisation and impairment
loss aggregate at beginning and end of period
◦Line item of income statement in which amortisation is included
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DisclosureReconciliation of carrying amount at beginning
and end of period◦ Additions (internally developed, separately acquired
and acquired through business combinations)◦ Classified as held for sale◦ Included in disposal group classified as held for sale◦ Increases or decreases from revaluation◦ Increases or decreases from impairment losses in
equity◦ Impairment loss in profit or loss◦ Impairment loss reversed in profit or loss◦ Amortisation recognised in the period◦ Net exchange differences arising on translation◦ Other changes in carrying amount
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Disclosure Intangible asset with indefinite useful life
◦ Carrying amount◦ Reason for indefinite useful life assessment◦ Significant factors assessed
Intangible asset material to financial statements◦ Description, carrying amount and amortisation and remaining
amortisation period Intangible assets acquired with government grant at fair
value◦ Initial fair value◦ Carrying amount◦ Cost or revaluation model used
Intangible assets with restricted title◦ Carrying amount
Intangible assets pledged as security for liabilities◦ Carrying amount
Contractual commitments for acquisition of intangible assets
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DisclosureResearch and development costs recognised
as expense during the periodRevalued intangible assets
◦ Class of intangible asset Effective date of revaluation Carrying amount Carrying amount when measured using cost model
◦ Revaluation surplus At beginning and end of period Change during the period Restriction on distribution of balance to shareholders
◦ Fair value estimates Methods and significant assumptions to estimate fair
value
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Transitional provisionsApply prospectively from same date as
applying IFRS3 retrospectivelyDo not adjust carrying amounts
recognised at that dateReassess useful lives at that dateIf changed, treat as change in
accounting estimate IAS 8Apply from 31 March 2004
◦Agreement date of business combination◦Prospectively to other intangible assets◦Apply early together with IFRS 3 and IAS 36
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Summary Intangible assets that give control over an
identifiable resource with future economic benefits are recognised at cost or fair value
Research is not an intangible assets and is expensed
Intangible assets are measured using either the cost or revaluation model
Intangible assets are reviewed annually for impairment and changes in useful economic life
Intangible assets with indefinite useful lives are not amortised
Internally generated intangible assets are expensed as incurred