FAC3702 Learning unit 4

LEARNING UNIT 4
IAS 38 INTANGIBLE ASSETS

Disclaimer

The information contained in the summary is to highlight important aspects in applying the
principles of the applicable statements. The summary is in no way an indication that only the
matters mentioned are important to pass. Students must refer to their study guides and
textbooks for an understanding of the learning unit.

The summary below is primarily a revision tool to assist students in preparation of the exam.

DEFINITION
The components of the definition of an intangible asset are:
Identifiable
Non-monetary asset
Without physical substance
Controlled as a result of past events, and
Expected inflow of future economic benefits IA =
Intangible
asset IA is initially mea-
RECOGNITION sured at cost

IA shall only be recognised if:

Probable that expected future economic benefits attributable to the asset will flow to the
entity, AND
The cost of the asset can be measured reliably

INTERNALLY GENERATED IA

To assess whether an internally generated IA meets recognition criteria, it is classified

into:
Research phase Development phase
No intangible asset recognised IA arising from development recognised
Any expenditure incurred expensed ONLY if entity can demonstrate ALL of the
immedately following:

Examples: Technical feasibility of completion

Research cost Intention to complete and use/sell
Expenditure on start-up activities Ability to use/sell
Training costs How IA will generate probable future
economic benefits
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Advertising and promotional costs Availability of adequate resources to

Relocating or re-organising costs complete development and use/sell
Ability to measure expenditure

Cost of internally generated IA is the sum of expenditure incurred

from the date when intangible assets first meets recognition criteria.
Cost comprises all directly attributable costs necessary to create,
produce or prepare the asset.

MEASUREMENT AFTER RECOGNITION

Cost model Revaluation model

Carried at cost less any Carried at revalued amount (Fair value) at date of
accumulated amortization and revaluation, less any subsequent accumulated amortization
accumulated impairment losses and impairment losses.
Fair value must be determined by reference to an active
market.
Frequency of revaluations depends on the volatility of the fair
values of the IA being revalued.

USEFUL LIFE

The useful life of an asset needs to be assessed as:

Finite
IA is amortised over the useful life of asset
Depreciable amount is allocated on a
systematic basis over its useful life
Amortisation begins when the asset is
available for use
Amortisation will stop at the earlier of:
o Date of classification as held for
sale
o Date of derecognition of asset
Amortisation will reflect pattern in which
future economic benefits are expected
to be consumed by the entity
Amortisation recognised in Profit/Loss
Infinite
IA is not amortised
Entity must test asset for impairment,
by comparing recoverable amount to
CA:
o Annually
o Whenever there is an indication
of impairment
Useful life must be reviewed annually
to determine whether events and
circumstances support the indefinite
useful life assessment
If there is change in useful life from
indefinite to finite, the change shall be
treated as change in accounting
estimate

IMPAIRMENT

Impairment loss is the amount by which CA of an asset EXCEEDS its recoverable amount
Refer to learning unit 3 for information on impairment of assets
 FAC3702 Learning unit 4

DISCLOSURE

Below is an illustration of what the disclosure for Intangible assets must look like.

Purchased intangible assets and developed intangible assets must be shown separately.

Intangible assets
Developed Purchased Total
Intangible Intangible
asset asset
Carrying amount at the beginning of the year
Cost
Accumulated amortisation
Additions
Amortisation (included in other expenses)
Impairment (included in other expenses)
Revaluation/(Devaluation)
Derecognition
Reversal of impairment (Included in “other income”)

Carrying amount at the end of the year

Cost
Accumulated amortization and impairment losses

The purchased intangible asset has a carrying amount of [Rvalue] and a remaining useful life of
[X years] at year end.

The developed intangible asset has a carrying amount of [Rvalue] and a remaining useful life of
[ years] at year end.

This information must be disclosed for each CLASS of intangible

asset that is disclosed. Each CLASS of intangible asset must
be disclosed separately. You must
not just distinguish between
purchased and developed, but the
class of assets must also be
Please note: If the impairment
information was not disclosed in a distinguished.
separate note, then it must be
disclosed in the Intangible asset note.
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Profit before tax

R
Profit before tax includes the following:
Impairment loss Rvalue
Amortisation Rvalue
Research cost Rvalue
 FAC3702 Learning unit 4

Hints and tips

Read through the question carefully, make sure you do not miss any information.
Draw a timeline of events and clearly mark the events occurring. This will assist you in
determining when and how the events occur and assist in presenting a logical solution.
Amortisation must be calculated proportionately for a part of the year.
Tax allowances must not be calculated proportionately for a part of the year.
Remember to get the easy marks in the question.