F7 Chp 5-1

Slide 3
Intangible assets (IAS 38)
Definition:
Identifiable non-monetary asset without physical substance
(a) Controlled by the entity as a result past events;
Chapter 5 Intangible assets
Chapter Guide • Discuss the nature and accounting treatment of internally generated and purchased intangibles. • Describe the criteria for the initial recognition and measurement of intangible assets. • Distinguish between goodwill and other intangible assets. • Describe the subsequent accounting treatment, including the principle of impairment tests in relation to goodwill.
Probable future economic benefits Intention to complete and use/sell asset Resources adequate and available to complete Ability to use/sell asset
Technical feasibility
Goodwill
• Purchase consideration – Share of fair value of the net assets • Does NOT amortise • Impairment test annually • Negative goodwill should be recognised and w/off to income statement immediately • Disclosed separately from other intangibles
Expenditure can be reliably measured
Internally generated intangible assets
R&D
• Research expenses should be written off as incurred. • Development expenses must be capitalised if meet ‘PIRATE’ criteria. • Development expenses should be written off after recognisation if criteria are not met.
Slide 2
Exam Context • Indicate why the value of purchase consideration for an investment may be less than the value of the acquired identifiable net assets and how the difference should be accounted for. • Describe and apply the requirements of relevant accounting standards to research and development expenditure. A full question could appear in the exam on intangible assets, covering their recognition and measurement, including the treatment of research and development costs.
Goodwill
• Not recognised
Other intangible assets
• Can rarely be capitalised due to the fact that they can NOT be measured reliably (similar to goodwill)
Business combinations (IFRS 3)
Intangible assets other than goodwill
• Recongised at fair value even if not recognised at acquiree’s accounts • Amortize over useful life
and (b) Future economic benefits are expected to flow in
Measurement at recognition
Separate acquisition
Acquired as part of business combi
Internally generated intangible assets
Acquired by government grant
Cost
Fair value (IFRS 3)
NOT recognised
Only recognised if PIRATE criteria met
Internally generated intangible assets