ias 38 intangible assets (2)

04/08/2023 IAS 38 Intangible Asset Part Two 1

IAS 38 Intangible Assets (part two)Accounting treatment and disclosure


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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


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

ias 38 intangible assets (2)

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