Intangible Asset
IAS 38 Intangible Assets
Definition
An intangible asset is an identifiable non-monetary asset without physical substance.
Intangible assets include items such as:
-Licences and quotas
-Intellectual property, e.g. patents and copyrights
-Brand names
-Trademarks
-Goodwill
For an asset to be identifiable, it must fall into one of two categories:
1.It is separable- the asset can be bought or sold separately from the rest of the business
2.It arises from legal/contractual rights- this will arise as part of purchasing an entire company.
Measurement
There is a choice between:
The cost model: cost less amortization and any impairment losses
The revaluation model: fair value less subsequent amortisation and impairment losses
Note:
-An intangible asset with an indefinite useful life, so not amortise, but test for impairment annually.
-Internally-generated intangible ( brand, goodwill, customer lists) assets are not recognized.
Research and Development
Research is original and planned investigation undertaken with the prospect of gaining new scientific knowledge and understanding, and write off as incurred to the statement of profit or loss.
Development expenditure is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Development expenditure recognise as an intangible asset if , and only if, an entity can demonstrate all of the following:
–Probable future economic benefits from the asset, whether through sale or internal cost saving
–Intention to complete the intangible asset and use or sell it
–Resources available to complete the development and to use or sell the intangible asset
–Ability to use or sell the intangible asset
–Technical feasibility of completing the intangible asset so that it will be available for use or sale.
–Expenses attributable to the intangible asset during its development can be measured.
It is only expenditure incurred after the recognition criteria have been met which should be recognised as an asset. Development expenditure recognised as an expense in profit or loss cannot subsequently be reinstated as an asset.
Amortisation: development expenditure amortise over its useful life as soon as commercial production begins.
IFRS 3 Business Combination
Goodwill may exist because of any combination of a number of possible factors:
-Reputation of quality or service
-Technical expertise
-Possession of favourable contracts
-Good management and staff
Reference:
-ACCA, F7 Financial Reporting by KAPLAN PUBLISHING
-ACCA, F7 Financial Reporting by BPP