FR - Accounting for transactions in financial

statements
Intangible Assets - IAS 38 - Part 2

MEASUREMENT AT INITIAL RECOGNITION:

General requirement of IAS 38: on initial recognition intangible assets should be measured at cost.

Possible acquisition scenarios:

1) Separate acquisition;
2) Acquisition by way of a government grant;
3) Exchange for another asset;
4) Acquisition as part of a business combination;
5) Internal generation.

Intangible asset can be recognised in the statement of financial position only if:

a) It is an identifiable non-monetary assets without physical substance;

b) It is probable that expected future economic benefits that are attributable to the asset will flow to the entity;
c) The cost of the asset can be measured reliably.

SEPARATE ACQUISITION:

Key assumptions of IAS 38:

- The price paid to acquire an intangible asset usually reflects expectations about the probability that future
economic benefits will flow to the entity;
- The cost of a separately acquired intangible can usually be measured reliably.

As both of the recognition criteria set out in IAS 38 will typically be met, such items will typically get recognised in
the statement of financial position.
The cost of a separately acquired intangible asset consists of:

1) The purchase price (including duties and taxes);

2) All directly attributable costs of preparing the asset for its intended use.

Remember: capitalisation of expenditure must stop when the asset is in the condition necessary for it to be
capable of operating in the manner intended by management.

Costs which should not be capitalised (must be expensed as incurred) include:

1) The costs of introducing a new product or service, including costs of advertising and promotional activities;
2) The costs of conducting business in a new location or with a new class of customer, including staff training
costs;
3) Administration and other general overhead costs;
4) Costs incurred in using or redeploying an intangible asset;
5) Costs incurred while an asset is already capable of operating in the manner intended by management but
has not yet been brought into use;
6) Initial operating losses.

ACQUISITION BY WAY OF A GOVERNMENT GRANT:

General rule of IAS 20: intangible assets received by way of a government grant may initially be recognised
either at fair value or a nominal amount, being the amount paid for the allocated resource (should be applied
consistently).

EXCHANGE FOR ANOTHER ASSET:

General requirement of IAS 38: intangible assets obtained in this way must be measured at their fair value.

ACQUISITION AS PART OF A BUSINESS COMBINATION:

In the case of a business combination, there is no such thing as a cost for each individual item being acquired,
because there is one overall price which is being paid for the target company as a whole.

General rule of IAS 38: the cost of an intangible asset acquired in a business combination is the asset’s fair
value.

Recognition criteria: in the case of business combinations, the criterion concerning the probability of future
benefits is always deemed to be satisfied. Additionally, IFRS 3 states that the cost of an intangible asset
acquired in a business combination can always be measured reliably.
INTERNALLY GENERATED INTANGIBLES:
Internally generated intangible assets are not recognised. Such assets would not qualify for recognition on the
grounds that their cost cannot be measured reliably. An example would be:

- Trademarks;
- Customer-related assets (customer contracts, customer relationships).