CHAPTER 11 INTANGIBLE ASSETS

Learning Objectives

Define intangible assets.

State the recognition, and account for the initial

and subsequent measurements, of intangible
assets.

Intangible Assets

 Intangible Assets are identifiable non-monetary assets without physical

substance.

Essential elements of an intangible asset

1. Identifiability

a. separable; or

b. arises from binding arrangements

2. Control – the entity has the ability to benefit from the intangible asset or prevent
others from benefitting from it.

3. Future economic benefits or service potential

Examples of Intangible assets

 Computer software  Patents

  Copyrights  Licenses

 Franchise  Acquired import quotas

 Motion picture films  Customer lists

 Trademarks or brand names

Recognition

 An intangible asset is recognized if it meets the definition of an intangible asset

and the recognition criteria for assets.

Initial Measurement

 An intangible asset is initially measured at cost.

Mode of Acquisition Measurement of Initial Cost

a. Purchase  Purchase price plus Direct costs (including

non-refundable taxes but excluding trade
discounts and rebates).

 If payment is deferred, the cost is the cash

price equivalent.

b. Non-exchange transaction  fair value at the acquisition date

c. Exchange  With commercial substance:

a. FV of asset given up (+ cash paid/- cash

received).

b. FV of asset received.

c. CA of asset given up (+ cash paid/- cash

received).

 Without commercial substance: CA of

asset given up (plus cash paid/minus cash
received).

d. Entity Combination  fair value at the acquisition date

 MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

Internal Generation

1. Research – undertaken to gain new knowledge. Expenditures are recognized as

expense.

2. Development – application of research findings to design new or substantially

improved products, processes, or systems before the start of commercial
production or use. Expenditures are capitalized only if all of the following are
met:

a. Ability to use or sell

b. Intention to complete
c. Technical feasibility
d. Availability of adequate resources
e. probable future
f. Economic benefits
g. Measured reliably

Other accounting requirements

 If it is not clear whether expenditure is a research or a development cost, it is

treated as research cost.

 Reinstatement of expenditure previously recognized as an expense is prohibited.

 Internally generated brands, mastheads, publishing titles, customer lists, and

similar items are not recognized as intangible assets.

 Selling, administrative and other general overhead, costs of inefficiencies, initial

operating losses, and training costs are expensed.

 Subsequent expenditures on recognized intangible assets are generally

expensed, unless they meet the definition of an intangible asset and the asset
recognition criteria.

 The accounting for replacement of a part of an intangible asset is the same as

those of PPE and investment property.

Subsequent Measurement

1. Indefinite life – not amortized but tested for impairment at least annually.

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 MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

2. Finite life – amortized using the straight line method over a period of 2 to 10
years. The residual value is assumed to be zero except when the entity has the
ability to sell the asset at the end of its useful life.

Impairment

 An entity is required to test for impairment an intangible asset with indefinite

useful life or an intangible asset not yet available for use at least annually or
whenever there is an indication of impairment.

 An entity shall test for impairment an intangible asset with definite useful life only
when an indication of impairment exists. Indications of impairment shall be
assessed at each reporting date.

 The accounting for impairment of intangible assets, and reversal thereof, is the
same as those of investment property and PPE.

Derecognition

 An intangible asset is derecognized when it is disposed or when no future

economic benefits or service potential is expected from the asset.

 On derecognition, the difference between the carrying amount and the net
disposal proceeds, if any, is recognized as gain or loss in surplus or deficit.

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Reference:

Accounting for Government and Non-profit Organization by Zeus Vernon B.

Millan

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