TITLE: PAS 38 Intangible Assets DESCRIPTION:
Overview This This stan standa dard rd sets sets out out the the reco recogn gnit itio ion n crit criter eria ia,, meas measur urem emen entt base bases s and and disclosure requirements for intangible assets not dealt with specificall in another standard [IAS 38, par.1]. Scope IAS 38 applies to all intangible assets other than [IAS 38, par.2-3] ! ⇒
financial assets "I " IAS 3# 3# $inancial $inancial Instruments! Presentation%
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e&ploration and evaluation assets " I$' $'S S ( )&ploration for and )valuation of *ineral 'esources%
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e&penditure on the development and e&traction of minerals, oil, natural gas, and similar resources
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intangi intangible ble assets assets arising arising from insuran insurance ce contract contracts s issued issued b insuranc insurance e companies
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intangible assets covered b another I$'S, such as intangibles held for sale "I$' $'S S + on-current Assets .eld for Sale and /iscontinued Operations%, deferred ta& assets "I " IAS 0# 0# Income Income Ta&es%, lease assets " IAS 01 2eases%, assets arising from emploee benefits " IAS 0 )mploee 4enefits "#500%%, and goodwill "I " I$'S 3 4usiness 6ombinations%7
CORE CONCEPTS:
/efinition Asset: ⇒ A resource that is controlled controlled b the entit as a result of past events "for e&le, purchase or self-creation% and ⇒ $rom which future economic benefits "inflows of cash or other assets% are e&pected [IAS 38.8]. Intang!"e asset [IAS 38.8]: identifiable non-monet non-monetar ar asset asset without without phsical phsical substance7 substance7 ⇒ An identifiable
Thus, the three critical attributes of an intangible asset are! o Identifiabilit o 6ontrol "power to obtain benefits from the asset% o $uture economic benefits "such as revenues or reduced future costs% I#ent$a!"t%: ⇒ An intangible intangible asset asset is identifiabl identifiable e when it [IAS 38, par.12]: o As separable "capable of being separated and sold, transferred, transferred, licensed, rente rented, d, or e&ch e&chang anged ed,, eithe eitherr indivi individu duall all or toget together her with with a relat related ed contract% contractual or other legal rights, regardless of whether those o Arises from contractual rights are transferable or separable from the entit or from other rights and obligations7
Intangibles can be acquired! o b separate purchase as part of a business combination o o b a government grant o b e&change of assets b self-creation "internal generation% o 'ecognition Intang!"e Asset: ⇒ It meets the definition of an intangible asset "including a requirement to be identifiable% ⇒ It is probable that the asset will result in a flow of economic benefits to an entit and ⇒ The asset9s cost can be reliabl measured [IAS 38.21]:
The probabilit of future economic benefits must be based on reasonable and supportable supporta ble assumptions about conditions conditions that will e&ist over the life of the asset [IAS 38, par.22]. The pro probabi babilit lit rec recogni ognition tion crit criterio erion n is alw alwas as con conside sidered red to be sati satisfie sfied d for intangible intangib le assets that are a&'(re# separate"% or in a !(sness &)*!nat)n [IAS 38.2+ an# par.33]. I$ re&)gnt)n &rtera n)t *et: ⇒ If an intangible item does not meet both the definition of and the criteria for recognition as an intangible asset, IAS 38 requires the e&penditure on this item to be recognised as an e&pense when it is incurred [IAS 38.8]. (sness &)*!nat)ns: ⇒ The fair value "and therefore the cost% of an intangible asset acquired in a
business combination can be measured reliabl [IAS 38, par.3+]. e&penditure iture "include "included d in the cost of acquisi acquisition% tion% on an intangib intangible le item ⇒ An e&pend that does not meet both the definition of and recognition criteria for an intangible asset should form part of the amount attributed to the goodwill recognised at the acquisition date7 Renstate*ent: ⇒ Prohibits an entit from subsequentl reinstating as an intangible asset, at a later date, an e&penditure that was originall charged to e&pense [IAS 38, par.1]. Resear&/ an# #e0e")p*ent &)sts: ⇒ 6harge all research cost to e&pense [IAS 38, par.+]. /evelo elopmen pmentt cos costs ts are cap capital italised ised onl afte afterr tech technic nical al and com commerc mercial ial ⇒ /ev feasibilit of the asset for sale or use have been established7 This means that the entit must intend and be able to complete the intangible asset and eith ei ther er us use e it or se sell ll it an and d be ab able le to de demo mons nstr trat ate e ho how w th the e as asse sett wil illl generate future economic benefits7 [IAS 38.+] ⇒ If an entit cannot distinguish the research phase of an internal pro:ect to create an intangible asset from the development phase, the entit treats the e&penditure for that pro:ect as if it were incurred in the research phase onl7 In-pr)&ess resear&/ an# #e0e")p*ent a&'(re# n a !(sness &)*!nat)n: 'eco cogn gnis ised ed as an as asse sett at co cost st,, ev even en if a co comp mpon onen entt is re rese sear arch ch77 ⇒ 'e Subse Su bsequ quen entt e& e&pe pendi nditu ture re on th that at pr pro:e o:ect ct is acc accou ounte nted d fo forr as an oth other er research and development cost "e&pensed e&cept to the e&tent that the e&penditure e&pend iture satisfies the criteria in IAS 38 for recognising such e&penditure as an intangible asset% [IAS 38, par.3]. Interna""% generate# !ran#s, *ast/ea#s, tt"es, "sts: ⇒ 4rands, mastheads, publishing titles, customer lists and items similar in substance that are internall generated should not be recognised as assets [IAS 38, par.3]. C)*p(ter s)$tare: ⇒ Purchased! capitalise ⇒ Operating sstem for hardware! include in hardware cost ⇒ Inte Interna rnall ll dev develop eloped ed "wh "whethe etherr for use or sale sale%! %! cha charge rge to e&p e&pens ense e unt untilil technological feasibilit, probable future benefits, intent and abilit to use or sellll the sof se softwa tware, re, res resou ourc rces es to co compl mplete ete the sof softw tware are,, an and d ab abili ilit t to measure cost7 Amortisation! tion! over useful life, based on pattern of benefits "straight "straight-line -line is ⇒ Amortisa the default%7 Certan )t/er #e$ne# t%pes )$ &)sts:
The following items must be charged to e&pense when incurred! o Internall generated goodwill [IAS 38, par.8] o Start-up, pre-opening, and pre-operating costs [IAS 38, par.] o Training cost [IAS 38, par.] o Advert Advertising ising and promotio promotional nal cost, including mail order catalogu catalogues es [IAS 38, par.] o 'elocation costs [IAS 38, par.]
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$or this purpose, 9when incurred9 means when the entit receives the related goods or services7 If the entit has made a prepament for the above items, that prepament is recognised as an asset until the entit receives the related goods or service [IAS 38, par.4]. *easurement Intang!"e Asset: ⇒ *easured initiall at cost [IAS 38.2]. 5eas(re*ent s(!se'(ent t) a&'(st)n: ⇒ An entit must choose either the cost model or the revaluation revaluation model for each class of intangible asset [IAS 38, par.2]. 6ost model7 After initial recognition intangible assets should be carried o at cost less accumulated amortisation and impairment losses [IAS 38, par.] o 'evalu 'evaluatio ation n model7 model7 Intangi Intangible ble assets assets ma be carried carried at a revalued revalued amount "based on fair value% less an subsequent amortisation and impairment losses onl if fair value can be determined b reference to an active mar;et [IAS 38, par.+]. par.+]. Such active mar;ets are e&pected to be uncommon for intangible assets [IAS 38, par.8] 7
The amortisation method should reflect the pattern of benefits7 If the pattern cannot be determined reliabl, amortise b the straight line o method7 o The amortisation charge is recognised in profit or loss unless another I$'S requires that it be included in the cost of another asset7 The amortisation period should be reviewed at least annuall [IAS 38, o par.14]. )&pected future reductions in selling prices could be indicative of a higher rate of consumpt consumption ion of the future economic economic benefits benefits embodied embodied in an asset asset [IAS 18, par.2]. o
The The stan standa dard rd cont contai ains ns a rebu rebutt ttab able le pres presum umpt ptio ion n that that a reve revenu nuee-ba base sed d amortisation method for intangible assets is inappropriate7 .owever, there are limited circumstances when the presumption can be overcome! o
o
The intangible asset is e&pressed as a measure of revenue and It can be demonstrated that revenue and the consumption consumption of economic benefits of the intangible asset are highl correlated [IAS 38, par.8A].
The asset should also be assessed for impairment in accordance with IAS 3(7 [IAS 38, par.111] 5eas(re*ent s(!se'(ent t) a&'(st)n: ntang!"e assets t/ n#e$nte (se$(" "0es intangible asset with an indefinite useful life should not be amortised amortised ⇒ An intangible [IAS 38, par.14]. Its usef useful ul life life should should be review reviewed ed each each repor reportin ting g perio period d to dete determi rmine ne ⇒ Its whether events and circumstances continue to support an indefinite useful life assessment for that asset7 If the do not, the change in the useful life assessment assessment from indefinite to finite should be accounted accounted for as a change in an accounting estimate [IAS 38, par.14]. ⇒ The asset should also be assessed for impairment in accordance with IAS 3( [IAS 38, par.111]. S(!se'(ent e6pen#t(re: ⇒ /ue to the nature of intangible assets, subsequent e&penditure will onl rarel meet the criteria for being recognised in the carring amount of an asset [IAS 38, par.24] 7 Subsequent e&penditure on brands, mastheads, publishing titles, customer ⇒ Subsequent lists lists and and simila similarr items items must must alwa alwas s be reco recogn gnise ised d in prof profit it or loss loss as incurred [IAS 38, par.3]. Dere&)gnt)n )$ ntang!"e assets: ⇒ >here an intangible asset is disposed of or
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where no future economic benefits are e&pected from its use or disposal it should be derecogni?ed [IAS 38, par.112]. @ains @ains and losses arising on derecog derecogniti nition on should should be calculat calculated ed as the differ difference ence between between the asset9s asset9s net disposa disposall proceeds proceeds and its carrin carring g amou amount nt and and shou should ld be reco recogn gnis ised ed in the the inco income me stat statem emen entt [IAS [IAS 38, 38, par.113].
Presentation An entit is required to present present intangible assets assets as a line item on the face of the balance sheet [IAS 1, par.+]. Ds&")s(res: $or each class of intangible asset, disclose [IAS 38, par.118 an# par.122]: ⇒ useful life or amortisation rate ⇒ amortisation method gross ⇒ carring amount ⇒ accumulated amortisation and impairment losses ⇒ line items in the income statement in which amortisation is included ⇒ reconciliation of the carring amount at the beginning and the end of the period showing! o additions "business combinations separatel% assets held for sale o o retirements and other disposals o revaluations impairments o o reversals of impairments amortisation o foreign e&change differences o other changes o ⇒ basis for determining that an intangible has an indefinite life ⇒ description and carring amount of individuall material intangible assets ⇒ certain certain special special disclosu disclosures res about about intangib intangible le assets assets acquire acquired d b wa of government grants information ion about about intangib intangible le assets assets whose whose title is restrict restricted ed contract contractual ual ⇒ informat commitments to acquire intangible assets Additional Additional disclosures disclosures are required about! ⇒ intangible assets carried at revalued amounts [IAS 38, par.12] par.12] the amount of research and development e&penditure recognised as an e&pense in the current period [IAS 38, par.12]
Summar! ')6O@ITIO
Intangible Asset
*)AS<')*)T
Initial Initial 'ecogn 'ecogni?ed i?ed "at cost% cost% An intangible intangible asset shall onl if! be meas measur ured ed init initia iall ll at cost7 07 It meets the definition of an intangible asset "including a req requir uirement ment to be identifiable%7 #7 It is probable that the asset will result in a flow flow of econ econom omic ic benefits to an entit7 37The cost of the asset can be reliabl measured7
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Separate Acquisition Acquisition ⇒
4usiness 6ombination
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Probable e&pected future economic benefits will flow to the entit 6ost can be reliabl measured7
*easured at cost7
Proba Probable ble alwa alwas s ⇒ *easured *easured at cost $B at met if fair value acquisition date7 "$B% can be o Acquirer recogni?es recogni?es it determined $B separatel from
P')S)TATIO It is presented in the financial financial statements statements as a sepa separa rate te line line item under the nonc noncur urre rent nt asse assets ts with the account title Intangible Assets7
reflects e&pectation e&pectation of futur future e econ economi omic c benefits7
It is never recognised as it is not an identifi identifiable able resourc resource e that can be measured reliabl7
Internall @enerated @oodwill )&change Asset
o
goodwill Irrespective of whether the acquiree had reco recogn gnis ised ed it befo before re acquisition7
of
@OB)'*)T @'AT
*easure acquired asset at its fair value Initia itiall ll recog cognis nised at either! ⇒ $air value omina nall valu value e plus plus ⇒ omi dire direct ct e&pe e&pens nses es to prepare for use7 Subsequent Subsequent Subsequent 6hoo 6hoose se eithe itherr the the cost cost e&pe e&pend nditu iture re ma be model or revaluation model capitali?ed if the as its accounting polic7 following are met! 07 6ost model 07 It is probable that 6arried at cost less future economic accumul accumulated ated amorti?a amorti?ation tion benefits that are and impairment losses attributable specifi ificall call to the #7'e #7'ev valua aluati tion on mode modell subsequent carried at a revalued e&penditure will flow t amou mount "based sed on fair the entit7 value% less an subse subseque quent nt amorti amorti?at ?ation ion #7 The subs subseq eque uent nt and and imp impairm airmen entt loss losses es e&pe e&pend ndit itur ure e can can be onl onl if fair fair valu value e can can be measured reliabl7 determined b reference to an active mar;et7
Intangible Asset