IAS 38 Intangible Asset

For it to be identifiable it must be.

1. Separable
2. Arises from a legal or contractual right

Recognition

1. It has to meet the definition of an intangible asset.

2. Probable inflow of economic benefits.
3. Ability to measure the cost reliably.

Amortization

Depreciation charged for intangible asset.

1. Cost * %
2. Cost / Useful life
3. If it doesn’t have a useful life (e.g. goodwill) then we need to do an impairment review at
the end of each year.

Internally generated intangible asset

E.g.: internal goodwill, customer list and goodwill, value of employees, internal brand names.

*Research and development

Research- is the process of finding new scientific knowledge.

Development- the process of applying the above knowledge on product, process of service.

Accounting Treatment

Research- expense
Development- Capitalize (intangible asset) and then amortize.

Exam focus

Development is met when the PIRATE criteria is met or when the directors become confident on the
project
Amortization on development is charged when it’s used for commercial production
Question 27

01/07/2004--------------------------------| 30/04/05----------30/06/2005
(10 months)

R&D = 750000/10000
= 75,000 per month

Research= 75000*6 (01/06/2005-01/01/2005)

= 450000

Development= 75000*4 (01/01/2005-30/04/2005)

= 300000
(Capitalize/ consider this as intangible asset)

Amortization= Cost/Useful life

= (300,000/5)*1/12
=5,000

Carrying amount = cost – Acc. Amortization

=300,000-5000
=295,000
Question 29

01/10/2003------------------------------------------------------------------------------------30/09/2004

Research= 40,000*2 (01/01/2003-01/03/2004)

= 80,000

Development= 40,000*4 (01/03/2004-30/06/2004)

= 160,000

Amortization= Cost/Useful life

= (160,000/5)*3/12
=8,000

SOFP
=80000+8000
=88000

Question 39

Cost/useful life
(3,600,000/5)*9/12= 540,000
Question 30

Step 1 calculate the cost

Carrying Amount = Cost - Acc. Amortization
=17500+12500
Cost = 30000

Amortization = Cost/ Useful life

30000/6
5000

Acc. Amortization
= 12500+5000
=17,500