Intangible Assets

Objective – To specify the accounting treatment for intangible assets

NOT dealt with in another standard
IAS 38 does NOT apply to:
- Intangible assets covered by another standard (e.g., held for sale under IFRS, deferred
tax, goodwill)
- Financial assets (IAS 32, IFRS 9)
- Development + extraction of minerals, oil, gas
- Exploration and evaluation assets (IFRS 6)

What are Intangible Assets?

- Identifiable non-monetary assets without physical substance

Controlled as a result of past event Future Economic Benefits

Recognition

Future Economic Benefits Cost reliably measurable

Attributable to the asset If the asset is acquired purchased or
will flow to the entity receive separately as an asset standing
on its own then it’s consist of:

 Purchased price
 Any directly attributable cost

Of preparing the asset for its intended

use and sometimes the cost of an asset
is its fair value and it’s when the asset
is acquired in a business combination

Internally generated intangible assets

 DEVELOPMENT – 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.

So it’s simply the design of prototypes tools molds etc.

You can CAPITALIZE the expenditures for the development stage only when you can
prove the commercial and technical feasibility of the project.
 Probable future economic benefits
  Intention to complete and use/sell it
 Resources adequate and available to complete and use/sell
 Ability to use or sell the asset
 Technical feasibility
 Expenditures reliably measurable

 RESEARCH – Original and planned investigation undertaken with the prospect of

gaining new scientific or technical knowledge and understanding.
DO NOT CAPITAL! You cannot capitalize any costs of research into costs of any
intangible asset and instead you should EXPENSE them in PROFIT/LOSS as incurred

Goodwill – Do NOT recognize as an asset

Other assets – brands, customer lists, publishing titles > DO NOT CAPITALIZE
because these items fail to meet one or more recognition criteria for
Initial Measurement

You need to capitalize your own internal

Cost cost as your asset and you can capitalize
only the costs

 Directly attributed or allocated on a reasonable and consistent basis

 From the data of meeting the criteria - you can capitalize the expenses from the
date when the intangible asset means the recognition criteria for the first time
 No retrospective recognition - you cannot capitalize these expenses retrospectively

Intangible assets Subsequent measurement

Cost Model Revaluation Model

COST FAIR
VALUE

Accumulated Amortization Subsequent Accumulated Amortization

 Accumulated Impairment Loss Subsequent Accumulated Impairment Loss

- The application of both models is very similar as with property, plant and equipment(IAS
16) and amortization is simply equivalent of depreciation but there’s one very important
specific aspect of amortization of intangible assets

Useful Life

Finite Indefinite

Means that you know how many periods you’ll use Where there is no foreseeable limit to the period over
the assets or how many units you’ll produce with that which the asset will generate some cash flows
asset
e.g., software e.g., brands
Licenses

 Assume Residual Value = zero  Do not amortize

(Unless there is a buyer or an active
market)
 Revise amortization at the end of each
financial year-endRevaluation Model
 Review/ revise useful life at the end of
each financial year
(If you by some chance assess that the
useful life of your asset became finite
well maybe there’s an indicator of
impairment and you need to test)

Carrying amount

Credit to Equity Credit to Income Debit to Expenses Debit to Equity

- Revaluation - If reverses - If reverses

Surplus previous previous
decrease in increase in
profit or loss revaluation
surplus