IAS 38

Intangible Assets
• Kinds of Intangible Assets
• Recognition & Measurement
• Subsequent Measurement
• Amortization & Carrying Value
Intangible Asset
Is long-term identifiable asset that is non-monetary in
nature and without physical existence.

Essential Criteria :
Ø Identifiable
Ø Control
Ø Future Economic Benefits

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 Example of Intangibles

Identifiable

a. Patent
Non-Identifiable
b. Copyright
c. Franchise
d. Trademark
e. Brand name Goodwill
f. Computer Software
g. Broadcasting License
,airlines rights and fishing
rights
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Good will
arises when earnings exceeds
normal earnings by reason of good
name, capable staff and personnel,
reputation for superior products,
ü Purchased Good will
x Internally Generated favorable location and a list of
Goodwill regular customers

Gain on Bargain Purchase

ü Tested for Impairment

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Classification of Intangibles

Intangible Asset with

Intangible Asset with Indefinite Life
Definite Life

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Amortization
- Systematic Allocation of the
amortizable amount of an intangible
asset over its useful life

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Amortization Period :

A. Useful Life or Legal life which ever is lower

B. If Silent, Legal life will prevail

Legal Life:
a. Patent – 20 years
b. Copyright – 50 years after death not renewable
c. Trademark – 10 years renewable

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Amortization Patent:
Purchased –
Remaining Legal life / useful life whicher is shorter

Internally Developed- Legal Life/ useful life whichever is

shorter

Related Patent – Extended Life

Competing Patent - remaining life of old patent

Impairment of Patent – whenever there is an indication of

impairment

COST OF LITIGATION – OUTRIGHT EXPENSE

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Initial Measurement :
@COST
A. Separate Acquisition

B.Acquisition as part of Business Combination

C.Acquisition as way of Government Grant

D.Acquisition by Exchange

E. Internally Generated

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Initial Measurement :
A. Separate Acquisition

(1) Purchase Price

(2) Any directly attributable cost of

preparing the asset for its intended use.

a. Cost of employee benefits and

professional fees arising directly from
bringing the asset to its working condition

b. Cost of testing whether the asset is

functioningng properly
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Initial Measurement :
E. E.Internally Generated Intangibles
Internally Generated

Research Phase Development Phase

Recorded as Expense Recorded as expense

unless :

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R&D Problem Sample:
Krusty Krab Inc. is developing a new production process
for the formulation of Patent for Pretty Patties. Research
Costs incurred were Php 500,000.00. Total Cost incurred in
the Development Phase is Php 540,000 - Php 260,000 of
which is incurred before Oct 15,2019. On October 15,2019 ,
technological and commercial feasibility was established.
The Company is able to demonstrate how the new product
will be manufactured and sold by the entity. The cost of
registering the patent related to the product is Php
30,000.00

How much is Patent? How Much is the R&D Expense?

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R&D Problem Sample:
Development Phase Php 540,000.00
Expense Prior Tech Feasibility (Php 260,000.00)
Capitalizable Patent Php 280,000.00
Cost of Registering Patent Php 30,000.00

Total Cost of the Patent Php 310,000.00

Research Phase Php 500,000.00

Expense Prior Tech Feasibility Php 260,000.00
Total R&D Expense Php 760,000.00

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Entry:

Patent 310,000
R&D Expense. 760,000
Cash 1,070,000

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Excluded from Intangible Asset:

a. Goodwill
b. Customer List
c. Brands
d. Mastheads
e. Secret Formula
f. Secret Recipe
g. Production Backlogs

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Excluded from Intangible Asset:

a. Goodwill
b. Customer List
c. Brands
d. Mastheads
e. Secret Formula
f. Secret Recipe
g. Production Backlogs

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 Included whether
Purchased or Internally Generated

a. Patent
b. Copyright
c. Franchise
d. Trademark
e. License
f. Computer Software
g. Website

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Included ONLY if
Purchased

a. Goodwill
b. Customer List
c. Brands
d. Mastheads
e. Secret Formula
f. Secret Recipe
g. Production Backlogs

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19
Rosmar Pamulaklakin Co. was formed towards the
end of 2019. At the time of formation, the company
spent 50,000 for accounting fees; 150,000 for legal
fees; stock certification costs of 500,000; initial
franchise fee of 1,000,000 initial lease payment of
300,000; and promotional fees of 300,000. How
much of the foregoing shall be initially recorded as
intangible assets?

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Subsequent Expenditure:
A. Generally treated as Expense
B. Capitalized if it can enhance the intangible

1. Extension of useful life

2. Increase in Cash Inflow
3. Improvement of Quality of the Output

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Subsequent Measurement:

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Derecognition:
A. Upon Disposal
B. When no economic benefits are expected from use
and disposal of the asset

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Sample Computation :

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Sample Computation :
During 2018, the company spent P180,000 for research and
development of patent, P80,000 of which was development cost incurred after
establishing technological and commercial feasibility.
The enterprise was able to determine how the patent would be used in its
production process.

On January 1, 2019, the enterprise paid P15,000 to apply for and obtain rights
to the patent. The estimated life of the patent was ten years

At the beginning of 2021, the company paid P72,000 in successfully

prosecuting an attempted infringement of is patent rights

On January 1, 2022, XYZ paid P60,000 for a competing patent. This patent will
not be used but was acquired to protect its existing patent.

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Inah Maureen Inc. developed a patent at cost of P300,000 and spent P200,000 for the licensing of the
patent including legal fees and cost of models and drawings that accompany the registration on
January 1, 2020

The patent will be useful for the entire legal life of 20 years.

On January 1, 2022, the entity paid P130,000 to attorneys for the services in connection with a
successful defense of the patent.

On January 1, 2023, the entity purchased a competing patent for P50,000 in order to protect the
original patent.

The competing patent has 18 years to run from the date of acquisition.

On December 31, 2023, the product covered by the patent was withdrawn from sale under a
government order because of potential hazard in the product.

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January 1, 2022, Inah Mocha Inc. acquired a patent for
P2,400,000. The patent has a useful life of 10 years and
remaining legal life of 12 years.

On December 31, 2022, there is an indication that the patent

may be impaired.

The patent is expected to generate cash flows of P300,000

per year for the remaining useful life of 9 years.

The appropriate discount rate is 9%. The present value of an

ordinary annuity of 1 for 9 periods at 9% is 5.9952 the patent
has no determinable fair value less cost of disposal.

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At the beginning of current year, Skusta Clee acquired a trademark
for P3,000,000. The trademark has a remaining legal life of 8 years.

However, it is anticipated that the trademark would be routinely

renewed in the future. Thus, the trademark is considered to have an
indefinite life.

Accordingly, no amortization is required for the trademark. However,

the trademark must be tested for impairment annually.

The trademark is expected to generate cash flows of P250,000 per

year. The appropriate discount rate is 10%.

(Mathematically, the present value of a stream of indefinite cash

flows is simply computed by dividing the annual cash flow by the
discount rate.)

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Beginning of current year, an entity purchased a franchise from KK Company to sell
products for P5,000,000 for 20 years.

The initial franchise fee is payable in cash, P500,000, when the contract is signed and
the balance in five equal installments every year-end, evidenced by a 12%
promissory note.

The agreement provided that the franchisor would assist in the location of site for the
construction of building, make a project study for the viability of the project and
provide training of management and employees. KK Company has already performed
substantially all the services required under the contract.

Moreover, the franchise pays the franchisor a periodic fee of 5% on the gross sales
of the franchisee each year. During the current year, franchisee realized gross sales
of P5,000,000.

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Thank you!

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