IAS 38 Intangible Assets

Rinkesh kothari

1.2 Definition of an intangible asset

An intangible asset is an identifiable non-monetary asset without physical substance.

Examples of Intangible Assets

A Corporation Patents
Goodwill

Copyrights

Intangible Assets
Customer list Trade name

Summary of IAS 38: Intangible Assets (1)

Recognition Criteria Must be separable from the underlying business (ie. the asset must be capable of being sold, licensed or rented); Must have legal or contractual control over the asset; Must deliver future economic benefits; Must be able to reliably measure the cost of the asset; Must be technically feasible; and Must demonstrate that the asset will be resourced to completion / bring into service.

Summary of IAS 38: Intangible Assets (2)

Measurement Criteria Bring onto the balance sheet at cost, including: Direct Materials/ contractor services Direct Staff costs Direct Legal costs Overhead allocation, where appropriate; Subsequently carry on the balance sheet at cost or valuation; Amortise over useful economic life; Apply impairment test to ensure continuing economic benefit. First-time Adoption of IAS 38 Prospective recognition (in accordance with IFRS 1)

Interpretation in the Draft I-FReM

I-FReM has adopted IAS 38 in full with the following adaptations: Option to carry asset at cost has been withdrawn. Intangible Assets must be re-valued at each balance sheet date following their initial capitalisation at cost. Where there is no active market to enable the valuation of the intangible asset, Depreciated Replacement Cost (DRC) may be used as a proxy for fair value. Indices may be used to assess DRC.

IAS 38: Issues for Public Sector

Recognition: Determining the date from which recognition criteria are met; Develop internal governance structures over programmes or development activities (eg Investment Boards); Identifying direct economic benefits of an asset where there are no income streams; Classifying expenditure between enhancement and routine maintenance. Measurement of Cost / Valuation: May require revisions to internal accounting such as project costing, to enable capture of discrete cost categories such as staff costs, contractors, overhead allocation; Annual valuation: often there will be no active market for public sector assets, so DRC needs to be captured and indices applied. First-time Adoption: Recognition and disclosure of possible Prior-Year Adjustments to 2007/08 comparatives; Stakeholder understanding of change in accounting policy.

References
Draft I-FReM IAS 38 Intangible Assets IAS 16 Property, Plant and Equipment IFRS 1 First-Time Adoption of IFRS SIC 32 Intangible Assets - Website costs