1

IAS 38 Intangible
assets
Lecture 2: Part A
Internally generated intangible assets
and subsequent measurement
 Purpose and objective
2 PURPOSE AND OBJECTIVE

 Understand the basic theory of intangible assets. (Background and

definitions.) (Lecture 1 (‘L1’) Part A)
 Apply the theory in discussion questions. (L1 – L3)
 Understand what items are included as part of the cost of intangible assets.
(Recognition and initial measurement.) (L1 Part B)
 Understand internally generated intangible assets and subsequent
measurement, including the amortisation of intangible assets with a finite
useful life. (L2 Part A)
 Understand impairment, derecognition and income tax treatment of
intangible assets. (L2 Part B)
 Understand the presentation and disclosure requirements of intangible
assets at historical cost. You should be able to prepare financial statements
in accordance with International Financial Reporting Standards (IFRS). (L3)
3 CONTENT MATERIAL
Resources:
 Introduction to IFRS: Chapter 15 (L2 Part A concentrate on Par 6 & 7 and
Part B on Par 8 & 9). Also chapter 7 for Income tax and chapter 13 for
impairment of assets.
 Reader: A guide through IFRS: IAS 38 (L2 Part A concentrate on Par 51
– 106 and Part B on Par 111 - 117).
 Study Guide: Unit 14
Exclusions for this topic:
Please ignore references to the following, as these aspects fall outside the
scope of the module (Paragraph references below relates to IAS 38):
 Acquisition as part of a business combination (Par 33 – 43; 68(b)).
 Acquisition by way of a government grant (IAS 20) (Par 44,122(c)).
 Internally generated Goodwill (Par 48 – 50).
 IAS 23 Borrowing Costs (Partial Par 66).
 Website costs (SIC 32).
 Revaluation model (Par 75 – 87; 124 – 125).
 Indefinite useful life (Par 88 (partial), 89, 91, 107 – 110, 122(a)).
 IAS 38.13 - 17
4 RECOGNITION
TB 15.2
Intangible assets can be
obtained from:

Separate acquisition Exchange Internally generated

See lecture See lecture 3 (L3) for

Capitalise all costs slides below. more information.
that meets the
recognition criteria,
e.g. costs contributing
to the creation,
manufacturing and The focus will now be
preparation of the on internally generated
asset for its intended intangible assets
use. (purchase and
exchanges were done
in L1 Part B)

All other costs should be

expensed (IAS 38.68)
 IAS 38.51 - 53
5 INTERNALLY GENERATED INTANGIBLE ASSET
TB 15.6
What is meant by internally generated intangible assets?
 It is similar to self-constructed items of PPE, in other words the asset is
“created” within the entity.
It is sometimes difficult to assess whether an internally generated intangible
asset qualifies for recognition because of problems in:
 identifying whether and when there is an identifiable asset that will
generate expected future economic benefits; and
 determining the cost of the asset reliably. Additional
recognition criteria is
therefore required.

Two phases in the development of internally generated intangible assets,

(other than goodwill):
1. Research phase and If unable to split between
research and development
2. Development phase. phase, treat all expenses
as research cost.
6 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
Research: IAS 38.54 - 56

Original and planned investigation undertaken with the prospect of gaining

new scientific or technical knowledge.
Definition
Examples of research activities include:
 activities aimed at obtaining new knowledge;
 the search for, evaluation and final selection of, applications of research
findings or other knowledge;
 the search for alternatives for materials, devices, products, processes,
systems or services; and
 the formulation, design, evaluation and final selection of possible
alternatives for new or improved materials, devices, products,
processes, systems or services.

No IA can arise from the research

phase, all expenditure recognised
as expenses in profit or loss when
incurred.
7 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
Development cost: IAS 38.57 - 62
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.
Definition

Capitalised as Intangible asset when all the following criteria, over and
above normal recognition criteria, are met:
 Technical feasible;
 Intention to complete and use or sell it;
 Have adequate resources to complete the IA and to use or sell it (e.g.
show through business plan or lender’s willingness to fund);
 Have the ability to use or sell;
 Can establish how it will generate future economic benefits; and
 Can reliably measure expenditure attributable to IA during its
development.
Development phase further
advanced than Research
phase and IA can arise from it.
8 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.59
Examples of development activities include the:
 the design, construction and testing of pre ‑production or pre ‑use
prototypes and models;
 the design of tools, jigs, moulds and dies involving new technology;
 the design, construction and operation of a pilot plant that is not of a scale
economically feasible for commercial production; and
 the design, construction and testing of a chosen alternative for new or
improved materials, devices, products, processes, systems or services.
9 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.65, 68 & 71

How does the accounting treatment of research cost differ from that of
development cost?

Research costs
expensed
(SPL)

Development costs
capitalised (If recognition criteria in paragraph 57 are met, otherwise
expensed.) (SFP)

The cost of an internally generated intangible asset is therefore the sum of

expenditure incurred from the date when the intangible asset first meets the
recognition criteria. (Reinstatement of previously recognised expenses are
prohibited.)
10 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.55

Different accounting treatment!

Why?

 Recognition criteria of an asset states clearly: the probability of future

economic benefits.

 Research: Low level of certainty that there will be future economic

benefits.
 Development: The project has advanced to such a level that future
economic benefits can be estimated with more certainty.

Thus:
Research: Expense
Development: Capitalise as intangible asset (If criteria in IAS38.57
are met, see next slide.)
11 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.57
BUT: before you can recognise the development costs as an intangible
asset, the following recognition criteria should be satisfied:
1) Normal recognition criteria.
2) Technical feasibility should be of such a nature that the product will be
ready for sale or use after development is complete.
3) Intention to complete and sell/use.
4) Ability to complete and sell/use.
5) Should be able to establish how probable future economic benefits
will be generated.
6) Availability of sources to be able to complete and sell/use the asset.
7) Expenditure with respect to the development phase can be measured
reliably.

Thus: if there is uncertainty with respect to the economic benefits that will
be generated or if the cost cannot be measured reliably, then all expenditure
will be recognised as an expense.
12 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.66 - 67
What if we cannot distinguish between research and development?
 Prudence – everything recognised as an expense! 🤔 Conceptual
FW, Prudence?
Which costs may be capitalised?
 Only the directly attributable costs with respect to the development phase,
e.g. material and services used, employee benefits arising from
generation of IA, fees to register legal right and amortisation of patents
and licences used to generate the IA.

The following costs cannot be capitalised, e.g.:

 selling, administrative and other general overhead expenditure (unless
directly attributed to preparing for use),
 identified inefficiencies and initial operating losses, and
 staff training to operate the asset.
13 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1
IAS 38.65 – 66 & 71.
What if the research phase moves to the development phase – may we
capitalise the previously recognised research expenses?
 NO!!!! Thus: capitalisation commences when the intangible asset
satisfies the recognition criteria.

When does the amortisation of the Intangible asset start?

 Only from the date that the asset is available for use as intended by
management.
14 INTERNALLY GENERATED IA: RESEARCH AND DEVELOPMENT COSTS

Let’s visualise it:

(1) Research costs are expensed in the SPL.

(2) Development costs that do not meet all the recognition criteria are also
expensed in the profit or loss section in the SPL.
(3) Development costs that meet all the recognition criteria are capitalised
and recognised as an intangible asset in the SFP.
(4) Stop capitalising all costs once the asset is ready and available for use
as intended by management. Amortisation also start at this date.
15 EXAMPLE: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1

Let’s work through Example 15.4 in your textbook.

Alpha Ltd has a research division that worked on the following projects during the
year:
 Project I: The design of a steering mechanism that does not operate like the
conventional steering wheel, but reacts to impulses from the driver’s fingers.
Vehicle manufacturers are very sceptical about this project.
 Project II: The design of a welding apparatus that is controlled electronically
rather than mechanically. Several large plants have enquired about this
development and are very enthusiastic. This project has met all the
recognition criteria for intangible assets since the beginning of this year.
The following is a summary of the expenses of the different departments:

The departmental head spent 15% of his time on Project I and 10% on Project II.
Required: Calculate the amount that can be capitalised as development cost?
Test yourself!
16 EXAMPLE: RESEARCH AND DEVELOPMENT COSTS
TB 15.6.2.1

TB: Example 15.4 Solution

The capitalisation of development costs for the financial year is as follows:

Project I:
The activity is classified as research and all costs are recognised as
expenses. No amount is capitalised.

Project II:
This project has met all the recognition criteria from the beginning of the year
and therefore all directly attributable development costs can be capitalised,
i.e. 620 + 320 + (10% × 400) + 410 + 60 = 1 450 000.

Remember, only costs incurred from the

date on which the intangible asset first
qualified as an asset (in terms of the
recognition criteria for intangible assets)
may be capitalised as internally generated
intangibles.
 IAS 38.51, 63 & 64
17 INTERNALLY GENERATED INTANGIBLE ASSET (‘IA’)
TB 15.6.2
Other internally generated intangible assets:
 Internally generated goodwill (IAS 38:48 – 50) N/A
• Is not recognised as Intangible Asset. Why Not?

Because it does not meet the definition of an asset or the recognition

criteria (I.e. not a separately identifiable source that is controlled by the
entity that will generate specific future economic benefits that can be
measured reliably.

 Internally generated assets that are not recognised:

 Brands, trademarks, mastheads, publishing titles, customer lists and
items similar in substance.
 Why? The costs with respect to these items cannot be separated from
the development of the business as a whole.
Sometimes difficult to determine whether an
identifiable asset, that will generate future economic
benefits, exists and also to determine the cost reliably.
18 MEASUREMENT
RECOGNITION IAS 38.72 - 74

TB 15.7
Subsequent measurement
Choose between:
 Cost model (Cost – Accumulated amortisation and impairment losses); or
 Revaluation model (Fair value – accumulated amortisation and impairment
losses since revaluation date). (N/A, excluded for this year)

IAS 38 gives no preference between the two models, but should be

consistently applied to ensure comparability between financial statements and
from year to year.

We are focusing on the cost

model. This is the same as
for PPE.
19 MEASUREMENT: AMORTISATION OVER USEFUL LIFE IAS 38.97
TB 15.6.2.1 & 15.7.3.2

What do we call the ‘depreciation’ of an intangible asset?

 Amortisation
The same principles apply as for the calculation of depreciation, i.e.:
 Amortisation is the systematic allocation of the depreciable amount of
an intangible asset over its useful life.
 The depreciable amount is the cost of the asset or other amount
substituted for cost less the residual value.
 Amortisation commences as soon as the asset is ready (available) for
use i.e. when it is in the location and condition necessary for it to be
usable in the manner as intended by management. (Continue to
amortise, even if asset is no longer used.)
 Amortisation ceases when the asset is derecognised, classified as held
for sale (IFRS 5) or if the asset is fully amortised/depreciated.
 NB: You need to annually test for impairment while the asset is not yet
ready for use.
20 MEASUREMENT: AMORTISATION OVER USEFUL LIFE TB 15.7.1

Let’s work through Example 15.5 from your TB:

Entity H developed a new product and capitalised an amount of R150 000 as

development costs between 31 July 20.12 and 31 December 20.12.
On 1 January 20.13, the useful life of the development cost is estimated at
five years, as the expected useful life of the product arising from the
development costs is expected to be five years.
Required:
Journalise the entries for the development costs.

Test yourself!
21 MEASUREMENT: AMORTISATION OVER USEFUL LIFE IAS 38.99

TB 15.7.1

Solution for Example 15.5

The journal entries for the development costs will be as follows:

R R
31 July 20.12 – 31 December 20.12
Dr Intangible asset – Development cost (SFP) 150
000
Cr Bank (SFP)
150 000
Recognise development cost as an intangible asset

31 December 20.13
Dr Amortisation (P/L)*
30 000
*The amortisation of the development
Cr Accumulated
costs can also amortisation
be debited to(SFP)
cost of
30 000to the manufacture
sales since it relates
of thefor
Amortisation of development costs new product.
20.13 (150 000/5)
22 MEASUREMENT: AMORTISATION OVER USEFUL LIFE TB 15.7.1

Solution for Example 15.5

The carrying amount of the intangible asset at the end of 20.13 will be
calculated as follows:
R
Development costs capitalised
150 000
Amortisation *
(30 000)
Carrying amount at the end of 20.13
120 000

*The amortisation amount is an expense

and is usually written off in the profit and
loss section of the SPL.
23 MEASUREMENT: AMORTISATION PERIOD IAS 38.88, 90 & 95

TB 15.7.3.1
Useful life:
Intangible assets can either have:
 A finite useful life, or Finite = Limited /
restricted
 Indefinite useful life (N/A)

Factors that may influence the useful life of intangible assets include:
 the expected use;
Economic factors:
 the useful life of similar assets; determine period
(Future economic
 technological or other types of obsolescence;
benefit); Legal
 maintenance expenditure; factors: restrict
period.
 actions by competitors;
 legal or similar contractual limits on the use of the asset;
 whether the useful life is dependent on the useful life of other assets;
 the stability of the industry in which the asset operates; and
 changes in market demand for services or products generated by the
intangible asset.
24 MEASUREMENT: AMORTISATION PERIOD IAS 38.94 & 96

TB 15.7.3.1
For intangible assets with a finite useful life:

Allocate the depreciable amount of an intangible asset on a systematic

basis over its useful life (not economic life).
 If finite useful life – amortise over useful life.
 Renewal period – include if supported by evidence and no significant
cost is involved.

Useful life: Asset’s expected utility to entity.

Economic life: Asset’s total life (can be used by more
than one owner).
25 MEASUREMENT: AMORTISATION METHOD IAS 38.98 & 104 - 106

TB 15.7.3.2
Amortisation method

 The entity shall choose an amortisation method that reflects the pattern
in which it expects to consume the asset’s future economic benefits,
such as the:

 Straight – line method, or

 Diminishing balance method, or

 Units – of – production method.

 If the entity cannot determine that pattern reliably, it shall use the
straight-line method.
Changes to residual value,
amortisation method or period is a
change in accounting estimate
(IAS 8). Come back after you
have done IAS 8.
 IAS 38.8 & 100 - 104
26 MEASUREMENT: RESIDUAL VALUE TB 15.7

Residual value definition: The estimated amount that an entity would

currently obtain from disposal of the asset, after deducting the estimated
costs of disposal, if the asset were already of the age and in the condition
expected at the end of its useful life.
Residual value of intangible assets with finite useful life is deemed to be nil,
unless it can be estimated reliably, i.e. when:
 A third party is obligated to buy the asset at the end of its useful life for a
certain amount.
 Current active market exist and it is expected that it will still exist and be
active at the end of the asset’s useful life.
RV > 0 indicates asset
will be sold before the
end of its economic life.

The residual value may in some instances exceed the carrying amount.
 Then: cease the amortisation until the residual value has decreased to
below the carrying amount
 This should be evaluated annually
27 MEASUREMENT: RESIDUAL VALUE TB 15.7.3.3

Example 15.6 (Textbook)

1 January 20.13: Entity A acquired a licence to use computer software to
manage inventories at a cost of R27 000.
The licence has no time limit. It is, however, the policy of the entity to
upgrade computer systems every three years with the latest available
software.
Assume that there is an active market for these types of second-hand
software licences. The estimated current residual value to sell a similar
licence at the end of three years is R6 000.
Require:
Calculate the amortisation for the first year.

Test yourself!
28 MEASUREMENT: RESIDUAL VALUE TB 15.7.3.3

Example 15.6 Solution:

The amortisation for the first year of use is calculated as follows:

R
Carrying amount
27 000
Estimated residual value
(6 000)
Amortisation amount
21 000
Useful life
3 years
Amortisation (R21 000/3)
7 000
29 MEASUREMENT: RESIDUAL VALUE TB 15.7.3.3

Example 15.6 continue

During 20.14, there were significant increases in the price of second-hand
software. The residual value of the software licence was revised to R11 000.
The amortisation for the second year of use of the licence will be as
follows:

R
Carrying amount (R27 000 – R7 000)
20 000
New estimated residual value
(11 000)
New amortisation amount
9 000
Useful life (remaining) The change in the residual value
2 isyears
a change in estimate – IAS 8
(prospectively). We will cover
Amortisation (R9 000/2) this later in the year.
4 500
30
IAS 38 Intangible
assets
Lecture 2: Part B
Impairment (IAS 36), derecognition
and Income Tax (IAS 12)
 IAS 38.111
31 IMPAIRMENT TB 15.8

Impairment: Apply IAS 36 to determine whether an intangible asset is

impaired.
Revisit IAS 36: Impairment of assets

If an Intangible asset’s carrying amount is more than its recoverably amount,

the value of the asset should be written down to its recoverable amount, by
recognising an impairment loss through the SPL.
See journal entry:
Dr Impairment loss (SPL)
x
Cr Accumulated amortisation and impairment losses
x
The recoverable amount is the higher of:
1) Fair value less costs of disposal; and
2) Value in use.
If impairment circumstances no longer exist and it is expected to continue in
the foreseeable future, the impairment can be reversed. However the
impairment reversal is limited to the historical carrying amount (i.e. the CA
calculated as if there was never an impairment).
Reversal of impairment loss is recognised in the SPL.
 IAS 38.111
32 IMPAIRMENT TB 15.6.2.1

Internally generated intangible assets that are not yet available for use: Test
for impairment at least annually, even if no indication of impairment exists.
 Therefore, for research and development cost the expected future
economic benefits of the asset (recoverable amount) should be compared
to the asset’s carrying amount at the end of each financial year (test for
impairment).
 If any criteria for the capitalisation of development costs no longer apply
the intangible asset should be written off immediately.
 However, when subsequently persuasive evidence exists that the
circumstances (that resulted in the write-down) no longer exist, the asset
may be reinstated. Taking into account amortisation in accordance with
the original plan of amortisation for the period of the write down.

(Reinstatement is also recognised and

disclosed in accordance with IAS 36).
 IAS 38.112 - 117
33 DERECOGNITION TB 15.9

Derecognise when:
 Asset is sold (on disposal), or
 No future economic benefits are expected (from expected use /
disposal)
 If a part is replaced, recognise the cost of replacement and derecognise
the carrying amount of the replaced part.

(If not practical to calculate the CA of

replaced part, use cost of replacement
as indication of cost of replaced part at
the time it was acquired.)

Note the difference between derecognition and retirement:

 Derecognition: recognise profit / loss with sale in SPL (Net disposal
amount minus carrying amount).
 Retirement: continue to amortise until fully amortised / depreciated
or until it is classified as held for sale (IFRS 5).
34 EXAMPLE: IMPAIRMENT AND RETIREMENT TB 15.9

Let’s work through Example 15.8 in your textbook.

Lima Ltd holds a patent with a carrying amount of R2 000 000 as at

31 December 20.12. The patent was acquired four years ago at a cost of
R4 000 000, and a useful life of eight years at that point.
On 1 September 20.13, the production process in respect of which the patent
was required was terminated, and it was consequently decided to retire the
patent from active use.
At 31 December 20.13, the year end, there were internal indications of
impairment and it was established that the value in use of this patent was
Rnil, while it could be disposed of for R1 200 000 (gross), provided that
selling costs of R100 000 were incurred.
Disposal is not planned at this stage, as the asset may perhaps be modified
for other use.
Will this asset be derecognised
Required: or is it only retired?

Calculate the carrying amount of the asset at year end.

Test yourself!
35 EXAMPLE: IMPAIRMENT AND RETIREMENT TB 15.9

Solution for Example 15.8 in your textbook.

Amortisation for 20.13 of retired asset (not derecognised)

R’000
Cost at initial recognition
4 000
Amortisation per year (R4 000 000/8)
500

Carrying amount (‘CA’) of patent on 31 December 20.13

R’000
Cost (given)
4 000
Accumulated amortisation until 31/12/.13 (R500 000*5)
(2 500)
Carrying amount as at 31 December 20.13
1 500

CA and impairment loss

 Amortisation willon 31 December
continue 20.13, after testing for
(not derecognised).
 The impairment loss is recognised in the profit
impairment
or loss section of the SPL for 20.13. R’000
 Amortisation for 20.14 onwards will change
Carrying amount (31/12/ 20.13 before impairment testing) 1
to R366 667 (R1 100 000/(8 – 5 years))
500
36 INCOME TAX

Income tax: Apply principles as per IAS 12.

Revisit IAS 12: Income Taxes

Specific guidance will be provided in a question with respect to the

deductibility or not of certain expenses.

The SARS can for example:

 allow a deduction of 150% of the research and development expenditure
when it is incurred, or

Read carefully! All information

needed will be given in the
question, just apply.
37 TAXABLE INCOME CALCULATION

The following intangible asset transactions (including impairment on it) can

among others be included in the taxable income calculations (included is the
amounts for amortisation and tax allowance to give a broader picture):
Current tax: Calculation of taxable income:

Profit before tax: XX

➕ Research and development costs expensed (Accounting) X
➖ Research and development costs expensed (SARS) (X)
➕ Amortisation (Add back) X
➖ Wear and tear allowances (Deduct) (X)
➕ Impairment (Add back) X
➖ Reversal of impairment loss X/(X)
= Taxable income XX

NB: Remember, if differences between

accounting and tax treatment, reverse the
accounting and allow the treatment as per
the income tax act.
38 TEMPORARY DIFFERENCES (DEFERRED TAX)
With regard to the deferred tax calculation, the difference would be absorbed in
the carrying amount (‘CA’) and tax base (‘TB’) of the asset. Say for example an
Intangible asset has a CA of R50 000, after an impairment loss of R20 000 was
recognised, and a TB of R60 000. The deferred tax would be calculated as
always, i.e.
TEMP DT ASSET/
DESCRIPTION CA TB DIFFERENCE (LIABILITY)
R R R R
Intangible asset 50 000 60 000 (10 000) 2 800

An assets’ carrying amount (‘CA’) = future economic benefits

arising from its use and included in future taxable income
(Conceptual Framework (‘CF’)). The tax base (‘TB’) = future
tax deductions. Therefore, future taxable income of R50 000
with a R60 000 deduction. A deductible difference of R10 000
exits, giving rise to a future tax asset of R2 800 (10 000 x
28%).
39 TEMPORARY DIFFERENCES (DEFERRED TAX) TB 7.6.1.1

A company capitalised development costs of R320 000 during the year. An

amount of R50 000 was recognised as an amortisation expense. Assume
SARS will allow the capitalised cost to be written off over a period of four years
as a tax allowance. The temporary difference is calculated as follows at the end
of the reporting period:

TEMP DT ASSET/
DIFFERENCE (LIABILITY)
DESCRIPTION CA TB
R R R R
Development costs* 270 000 240 000 30 000 (8 400)

* Calculations:
 CA: R320 000 – R50 000
 TB: R320 000 – (R320 000 x 25%)

If the full amount for development costs was

expensed by the SARS, the TB would be zero
and the deferred tax balance would be reversed
over the asset’s useful life.
40 TEMPORARY DIFFERENCES (DEFERRED TAX) TB 7.6.1.1

During the year, a company paid for research costs of R10 000 in cash and
immediately recognised it as an expense in the statement of profit or loss and
other comprehensive income in terms of IAS 38. Assume SARS allows such
research costs to be deducted over three years on a 50/30/20 basis.

TEMP DT ASSET/
DESCRIPTION CA TB DIFFERENCE (LIABILITY)
R R R R
Research costs* - 5 000 (5 000) 1 400

* Calculations:
 TB: R10 000 – (R10 000 x 50%)

The temporary difference: Expense not

immediately deductible for tax purpose.
TB = amount deductible against future taxable
income (10 000 x (30% + 20%)
41 “PERMANENT” DIFFERENCES AND TAX RATE RECON
During the year, a company incurred R200 000 of research cost. The SARS
allows a deduction at a 150% level when incurred as this research was
approved by the Minister in the DST.

From the above it can be seen that the SARS allows an additional 50%
deduction above the normal 100% deduction, as for accounting purposes, for
the expense. This will give rise to the following difference:
Current tax calculation
Profit before tax
1 000 000
Non-taxable / Non-deductible items
Additional tax deduction for research costs (R200 000 x 50%) (100
000)
Temporary differences
xxx
xxxx
Taxable income
xxxx

This would also be included under the tax rate reconciliation:

Accounting profit
1 000 000
42 Class question: What about
cryptocurrencies ?

IFRS 9 IAS 38
What would be the appropriate accounting treatment for
cryptocurrencies like Bitcoin? Assume this to be a discussion
question in the next test.
• Classification
• Recognition
• Measurement
• Presentation and disclosure
 Classification

One of the biggest issues is probably

classification, as you need to
determine under what standard you
would account for Bitcoin.

The question then becomes, can it be

classified and treated under IAS 38:
Intangible assets? Because the IAS 38
standard excludes assets which are
measured under IAS 32 as financial
assets which are also IFRS 9.

Do you think Bitcoin would be an

intangible asset or a financial asset?
So, IAS 38 or IAS 32/IFRS 9.

43
44 Answer and class discussion

Start off by referring

back to the definition
of an intangible asset.

Without physical
Identifiable Non-monetary asset
substance
45 Answer
Because currency is not a right to receive cash at a determinable
amount due to crypto being such a volatile market, it can not be
classified under IFRS 9 and IAS 32.

But Cryptocurrency would meet the definition of an intangible

asset.
1. It is identifiable as bitcoin is separable from other assets in the
company.
2. Currently, it is a non-monetary asset because the conversion is
at an unknown amount and can not be seen as a monetary
asset due to volatility.
3. Cryptocurrency is without physical substance as it is not
tangible.

Therefore, the bitcoin would be classified under IAS 38.

46 HOMEWORK

Work through the following illustrative example:

 Example illustrating paragraph 65 in your reader. (IAS 38 p. A1454)

Do the following homework questions:

 3.1 Astrix Ltd (a) and (b)
 3.2 Avon Ltd
 3.3 First College Ltd

Please do the questions on your own, then mark them and correct your
own work. Make notes on errors made and correct your thinking pattern
where necessary.

Thank you!