intangible assets1

8/14/2019 Intangible Assets1

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Intangible assetsIntangible assetsAn intangible asset is an identifiable non-monetaryAn intangible asset is an identifiable non-monetaryasset without physical substance held for use inasset without physical substance held for use inthe production or supply of goods or services, for the production or supply of goods or services, for rental to others ,or for administrative purposes. Anrental to others ,or for administrative purposes. Anasset is a resourceasset is a resource::

--controlled by an enterprise as a result of pastcontrolled by an enterprise as a result of pasteventevent..

--From which future economic benefits areFrom which future economic benefits areexpected to flow to the enterpriseexpected to flow to the enterprise..


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AIS 38 requires an enterprise to recognisean intangible asset (at cost )if, and only if :

(a)- it is probable that the future economicbenefits that are attributable to the

asset will flow to the enterprise.(b)- the cost of the asset can be measured

reliably.


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Recognition and InitialRecognition and Initial

Measurement of anMeasurement of anIntangible AssetIntangible Asset


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An intangible asset should be recognized if,and only if :

(a) it is probable that the future economic benefits thatare attributable to the asset will follow to the

enterprise; and (b) The cost of the asset can be measured reliably. An enterprise should assess the probability of future

economic benefits using reasonable and supportableassumption that represent management's best estimateof the set of economic condition that will exist over theuseful life of the asset.


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An intangible asset should be measured initially atcost.


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Separate AcquisitionSeparate Acquisition

If an intangible asset is acquired separately, the cost of If an intangible asset is acquired separately, the cost of the intangible asset can usually be measured reliably.the intangible asset can usually be measured reliably.This is particularly so when the purchase consideration isThis is particularly so when the purchase consideration isin the form of cash or other monetary assetsin the form of cash or other monetary assets..

The cost of an intangible asset comprises its purchaseThe cost of an intangible asset comprises its purchaseprice , including any import duties and non-refundableprice , including any import duties and non-refundablepurchase taxes , and any directly attributablepurchase taxes , and any directly attributableexpenditure on preparing the asset for its intendedexpenditure on preparing the asset for its intendeduse .directly attributable expenditure includes , for use .directly attributable expenditure includes , for example , professional fees for legal services. Any tradeexample , professional fees for legal services. Any tradediscounts and rebates are deducted in arriving at thediscounts and rebates are deducted in arriving at thecostcost..


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Acquisition as part of a businesscombination

Under IAS 22 (revised 1998) , business combination , if an intangible asset is acquired in a businesscombination that is an acquisition the cost of the

intangible asset is based on its fair value at the date of

acquisition. Acquisition by way of a government grant

In some cases an intangible asset may be acquiredfree of charge, or for nominal consideration, by way of

a government grant.-Fair value initially or a nominal amount


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Under IAS 20 accounting for government grants anddisclosure of government assistance an enterprise maychoose to recognize both the intangible asset and thegrant at fair value initially.

Exchanges of assetAn intangible asset may be acquired in exchange or part

exchange for a dissimilar intangible asset or other asset.5the cost of such an item is measured at the fair value of the asset received which is equivalent to the fair value of the asset given up , adjusted by the amount of any cash

or cash equivalents transferred.Internally generated goodwill

Internally generated goodwill should not be recognizedas an asset.


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Internally generated intangibleInternally generated intangibleassetasset

It is sometimes difficult to assess whether anIt is sometimes difficult to assess whether aninterlay generated intangible asset qualifies for interlay generated intangible asset qualifies for

recognition . it is often difficult torecognition . it is often difficult to::

((a) identify whether ,and the point of time whena) identify whether ,and the point of time whenthere is an identifiable asset that will generatedthere is an identifiable asset that will generatedprobable future economic benefitsprobable future economic benefits..

((

b) determine the cost of the asset reliablyb) determine the cost of the asset reliably

.

.


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To assess whether in internally generatedTo assess whether in internally generatedintangible asset meets the criteria for recognition,intangible asset meets the criteria for recognition,an enterprise classifies the generation of the assetan enterprise classifies the generation of the assetintointo::

((a) - a research phasea) - a research phase..((b) a development phaseb) a development phase..

Research phaseResearch phase No intangible asset arising from research ( or fromNo intangible asset arising from research ( or from

the research phase of an internal project ) shouldthe research phase of an internal project ) shouldbe recogniz000ed .expenditure on research (or onbe recogniz000ed .expenditure on research (or onthe research phase of an internal project) shouldthe research phase of an internal project) shouldbe recognized as an expense when it is incurredbe recognized as an expense when it is incurred..


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Development PhaseAn intangible asset arising from development ( or from thedevelopment phase of an internal project) should be recognizedif and only if, an enterprise can demonstrate all of the following:

-the technical feasibility of completing the intangible asst so thatif will be available for use or sale;

-its intention to complete the intangible asset and use or sell it

-its ability to use or sell the intangible asset-how the intangible asset will generate probable future

economic benefits.-The availability of adequate technical, financial and other

resources to complete the development and to use or sell theintangible asset ; and

-its ability to measure the expenditure attributable to theintangible asset during its development reliably.


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Cost of an Internally GeneratedCost of an Internally GeneratedIntangible assetIntangible asset

The cost of an internally generated intangibleThe cost of an internally generated intangibleasset is the sum of expenditure incurred fromasset is the sum of expenditure incurred fromthe date when the intangible asset first meetsthe date when the intangible asset first meets

the recognition criteriathe recognition criteria The cost of an internally generated intangibleThe cost of an internally generated intangible

asset comprises all expenditure that can beasset comprises all expenditure that can bedirectly attributed, or allocated on a reasonabledirectly attributed, or allocated on a reasonableand consistent basis, to creating, producing andand consistent basis, to creating, producing andpreparing the asst for its intended use. The costpreparing the asst for its intended use. The costincludes, if applicableincludes, if applicable::


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(a) -expenditure on materials and services used or consumed in generating intangible asset;

(b) -the salaries, wages and other employment relatedcosts of personnel directly engaged in generating theasset;

(c) - any expenditure that is directly attributed to

generating the asset, such as fees to register alegal right and the amortization of patents andlicenses that are user to generate the asset; and

(d) - overheads that are necessary to generate the

asset and that can be allocated on a reasonable andconsistent basis to the asset.


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Measurement Subsequent toMeasurement Subsequent toInitial RecognitionInitial Recognition

..after initial recognition, an intangible asset should beafter initial recognition, an intangible asset should becarried at its cost less any accumulated amortization andcarried at its cost less any accumulated amortization andaccumulated impairment lossesaccumulated impairment losses..

Allowed Alternative TreatmentAllowed Alternative Treatment

..After initial recognition, an intangible asset should beAfter initial recognition, an intangible asset should becarried at a revalued amount, being its fair value at thecarried at a revalued amount, being its fair value at thedate of the revaluation less any subsequent accumulateddate of the revaluation less any subsequent accumulatedamortization and any subsequent accumulated impairedamortization and any subsequent accumulated impairedlosses. For the purpose of revaluations under thislosses. For the purpose of revaluations under thisstandard, fair value should be determined by referencestandard, fair value should be determined by referenceto an active market. Revaluations should be made withto an active market. Revaluations should be made withsufficient regularity such that the carrying amount thatsufficient regularity such that the carrying amount thatwhich would be determined using fair value at thewhich would be determined using fair value at thebalance sheet datebalance sheet date..


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AmortizationAmortizationAmortization Period .The depreciable amount of an intangible asset be allocated on

a systematic basis over the best estimate of its useful life. Thereis a rebuttable presumption that the useful life of an intangibleasset will not exceed twenty years from the date when the assetis available for use.

.If control over the future economic benefits from anintangible asset is achieved through legal rights that have beengranted for a finite period, the useful life of the intangible asset

should not exceed the period of the legal rights unless:(a) the legal right are renewable; and

(b) renewal is virtually certain.


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Amortization MethodAmortization Method

The amortization method used should reflect theThe amortization method used should reflect thepattern in which the asset's economic benefitspattern in which the asset's economic benefitsare consumed by the enterprise. If that patternare consumed by the enterprise. If that pattern

cannot be determined reliably, the straight-linecannot be determined reliably, the straight-linemethod should be usedmethod should be used..

The amortization charge for each period shouldThe amortization charge for each period shouldbe recognized as an expense unless another be recognized as an expense unless another International Accounting Standard permits or International Accounting Standard permits or requires it to be included in the carrying amountrequires it to be included in the carrying amountof another assetof another asset


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Residual ValueResidual Value

..The residual value of an intangible assetThe residual value of an intangible assetshould be assumed to be zero unlessshould be assumed to be zero unless::

((a) there is a commitment by a third party toa) there is a commitment by a third party to

purchase the asset at the end of its useful life; or purchase the asset at the end of its useful life; or ((b) there is an active market for the asset andb) there is an active market for the asset and::

((i)- residual value can be determined byi)- residual value can be determined by

reference to that market; andreference to that market; and((ii)- it is probable that such a market will existii)- it is probable that such a market will exist

at the end of the asset's useful lifeat the end of the asset's useful life..


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Review of Amortization PeriodReview of Amortization Periodand Amortization Methodand Amortization Method

.the amortization period and the amortization methodshould be reviewed at least at each financial year end.

Recoverability of the Carrying Amount-

Impairment Losses. .to determine whether an intangible asset is impaired,an enterprise applies IAS 36, Impairment of Assets.That Standard explains how an enterprise reviews the

carrying amount of its assets, how it determines therecoverable amount of an asset and when itrecognizes or reverses an impairment loss.


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Retirements and DisposalsRetirements and Disposals

An intangible asset should be derecognizedAn intangible asset should be derecognized( eliminated from the balance sheet ) on disposal( eliminated from the balance sheet ) on disposalor when no future economic benefits areor when no future economic benefits are

expected from its use and subsequent disposalexpected from its use and subsequent disposal....Gains or losses arising from the retirement or Gains or losses arising from the retirement or

disposal of on intangible asset should bedisposal of on intangible asset should bedetermined as the difference between the netdetermined as the difference between the netdisposed proceeds and the carrying amount of disposed proceeds and the carrying amount of the asset and should be recognized as incomethe asset and should be recognized as income

or expense in the income statementor expense in the income statement..


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DisclosureDisclosureThe financial statements should disclose the following for eachclass of intangible assets, distinguishing between internally

generated intangible assets:(a) the useful lives or the amortization rates used;

(b) the amortization methods used;

(c) the gross carrying amount and the accumulatedamortization (aggregated with accumulated impairment losses)

at the beginning and end of the period;(d) the line item ( s ) of the income statement in which the

amortization of intangible assets is included; (e ) a reconciliation of the carrying amount at the beginningand end of the period showing:


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(1)additions , indicated separately those from internaldevelopment and through business combinations;

(2)retirements and disposals;(3)increases or decreases during the period resulting from

revaluations under paragraphs 64, 76 and 77 and fromimpairment losses recognized or reversed directly in equity

under LAS 36 , impairment of assets ( if any) ;

(4)impairment loosed recognized in the income statementduring the period under LAS36 ( if any);

(5)impairment losses reversed in the income statement duringthe period;

(6)net exchange differences arising on the translation of thefinancial statement of a foreign entity ; and(7)other changes in the carrying amount during the period.

Comparative information is not required,(8) amortization recognized during the period

intangible assets1

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