Intangible Assets

Identifiable, non-monetary without physical substance

IAS 38 for IA

Goodwill acquired in a business combination is outside the scope of PAS 38 bc. It is unidentifiable

Essential characteristics of an intangible assets

1. I- separable or arises from contractual rights

2. Control- has the power to obtain future economic benefits from resources and to restrict other
from getting that benefit
3. Future economic benefits

Assets with both intangible and tangible elements

Initial Recognition and Measurement

Initially at cost

Mode of Acquisition

1. Separate acquisition
2. Acquisition as part of a business combination
3. Acquisition by way of a government grant
4. Exchange of assets
5. Internal generation

Separate Acquisition

Purchase price, import duties and NR Purchase taxes after deducting TD and rebates and

Any directly attributable to bring the asset to its intended use

Directly Attributable

1. Cost of employee benefits

2. Professional fees arising from bringing the asset to working condition
3. Costs of testing whether the asset is functioning properly

Exclusions of Intangible Assets

1. Cost of introducing a new product or service

2. Costs of conducting business in a new location
3. Administrative and other general overhead costs
4. cost incurred while an asset has yet to be brought into use (cannot be capitalized)
5. initial operating losses

Intangible Asset Definition Initial Cost

Patent An exclusive right granted for a Purchase+ direct cost if
product purchased
 Legal and registration costs only
if self-created

Copyright The legal protection extended Purchase+ direct cost if

to the owner of the rights in an purchased
original wprl All necessary conditions
To be capitalized if internally
generated
Franchise An exclusive right to be an Purchase+ direct cost if
extension of a big company purchased

Trademark A tool used that differentiates Purchase+ direct cost if

goods and services like brand purchased
logo word or a combination All necessary conditions
To be capitalized if internally
generated

Separate Acquisition by Deferred Credit

If payment for an intangible asset is deferred beyond normal credit terms, its cost is the cash price
equivalent

The difference between this amount and the total payments is recognized as interest expense unless it
capitalized as borrowing costs

Acquisition by way of a Government Grant

1. airport landing rights

2. licenses to operation stations

The IA and grant can be recognized initially at FAIR VALUE

If the entity choose not to recognize an asset it is in a nominal account

Acquisition by Issuance of Shares

1. FV of the IA received
2. FV of the shares
3. Par value of the shares

Exchanges of Asset

At fair value unless it lacks commercial substance and the fair value of neither asset received nor the
asset given up is reliably measurable

If the intangible asset is acquired by exchange of another asset, intangible is measured at (order priority)

1. FV of the asset given up (plus cash paid or minus cash received)

2. Fair value of the asset received
If it lacks commercial substance therefore we expect no profit or loss thus the IA is measured at the
carrying amount of the asset given up

Internally Generated Intangible Assets

1. Research and Development phase

If an entity cannot distinguish the R and D phases it will be expense as it if were incurred in the
research phase only (IAS 38 par.53)

Internally generated goodwill shall not be recognized as an asset

Expense on research shall be recognized as expense when it is incurred

1. Activities aimed at obtaining new knowledge

2. The search for, evaluation and final selection of, applications of research findings or other
knowledge
3. The search fpr alternatives for materials, devices, products, processes systems or services and
4. The formulation, design, evaluation and final selection of possible alternatives for new and
improved materials, devices, products, processes, systems or services

Nothing is created as a feasible product

Development phase- can be part of cost of the IA if an entity can demonstrate all of the following

1. Presence of Technical Feasibility

2. Intention to complete the IA to use or sell it
3. Ability to use or sell the IA
4. Probable future economic benefits , how it will be generated
5. Availability of adequate resources that will complete the IA
6. Measure reliably the expenditure attributable to intangible

Examples of DE

1. The design and construction of prototypes

2. New technologys
3. Pilot plant
4. Chosen alternative

Hems of PPE use in R&D activities

1. If the PPE can be used in various R&D activities the cost of the PPE is capitalized and
depreciated. The amount of depreciation is included as R&D expense
2. If the item of PPE can only be use on one specific R&D project the cost of the PPE is expensed
immediately in its entirety as R&D expense

Not qualified as R&D costs but rather regular expense

1. Costs incurred in commercial production

Cost of an Internally Generated IA

 Directly attributable costs

1. Costs of materials and services used or consumed in generating the intangible assets

Not component

1. Selling
2. Identified ineffciences
3. Training staff to operate the asset

SIC-32: Website Cost

Website in considered internally generated IA

SIC-32

Example 1:

Patent 120,000

License 160,000

Trademark 80,000

360,000 TC

Example 2:

Defense against patent is expensed