IAS 38 Intangible assets

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Criteria of an intangible asset

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

To be identified as an intangible assetan asset must either: 

  • be capable of being divided and sold, transfered, rented or exchanged either individulayy or together with a related contract.
  • arise from contractual or other legal rights

To be recognised as and intangible asset it must...

  • be probable that it will provide future economic benifits that are attributable to the asset will flow to the entity
  • have cost that can be measured reliably
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Research and development of intangible assets

Internally generated intangible assets cannot normally be recognised because it is not possible to determine costAs research uncovers new knowledge it cannot be recognised as an intangible asset.

Many companies will however keep a record of the amount spent on research and development therefore there is the possiblity to recognise intangible assets that arise from research or develoopment provided they can demostrate the following...

  • the feasibility of completion so it is available for sale or use
  • the intention of completion for sale or use
  • the ability to use or sell the asset
  • how the asset will generate probable future economic benifits
  • availability of resources to finish the development
  • ability to demostrate the expenditure towards the development of the asset
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The cost of intangible assets

The cost of an intangible asset comprises of all the costs needed to create, produce and prepare the asset for use. This includes...

  • costs of materials and services used or consumed in the generation of the assets including those used for prototypes.
  • costs of employee benefits arising from the generation of an intangible asset
  • fees to register a legal right

Costs not included are made up of the following...

  • selling, admin and other general overheads
  • initial operating losses before tha asset reachs planned performance
  • the cost of staff training 
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Measurement after recognition

Once an asset is recognised it must follow either the cost or the revaluation model.

Cost Model: the asset is carried at cost less any depreciation and any impairment losses.

Revaluation model: the asset is carried at it's revalued amount. This is it's fair value at the date of revaluationess any depreciation and impairment losses.

Intangible assets are rarely revalued as they are unique and therefore it is hard to revalue them. If however an asset is revalued the losses or gains must be accounted for in the following ways...

  • A gain should be credited to other income and held in the revaluation reserve
  • A loss will be debited to the statement of profit or loss or to other income if reversing a previous gain and deducted from the revaluation reserve. 
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The useful life of an intangible asset

Like all assets a useful life must be determined.

Intagible assets are written down over there useful life. this is simular to depreciation but for intangible assets is called amortisation, it beguins when an asset is ready for use.

The amortisation method should reflect the pattern in which the asset benefits the entity, if this is difficult then a straight line method should be used.

The residual value of an intangible asset is usually zero unless:

  • There is a commitment by a third party to purchase the asset
  • there is an active market value and a residual value that can be determined.

The method of amortisation should be reviewed every year, the asset must be tested annually for impairment. If the asset has an indefinate life it shall not be amortised.

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